You know what’s not good for a real estate market? A ton of uncertainty at the market’s biggest employer.
That was the story during the first six months of 2018, as rumors swirled about State Farm and its plans to shed or relocate hundreds of Bloomington-Normal employees.
“One of the biggest reasons was, we had a bit of unrest in the community. ‘Is my job safe? I don’t want to be making this move without knowing what my future is,’” said John Armstrong, president of the Bloomington-Normal Association of Realtors. “A lot of people sat on the fence in the first six months of the year. A lot of these folks found out they were safe at the end of June.”
Uncertainty surrounding State Farm was one of the biggest pressures on the Twin City housing market during the first half of 2018. Sales are down 10 percent through May—most recent data available—and average prices are down 2 percent too, according to the Bloomington-Normal Association of Realtors.
While cheaper homes are still selling fast to first-time homebuyers, those in the industry say the market is soft in the higher price ranges—above $250,000. Prices are dropping on those more expensive homes. New construction has largely dried up.
“We used to be in this thing called ‘The Bubble,’ because we had State Farm and ISU and Mitsubishi,” said Keith Thompson, senior loan officer at MSI in Bloomington. “We had great employers that kept the market rolling. In Bloomington, things were going well no matter what. But that’s no longer the case at the moment.”
“The upper end definitely has taken a hit. That’s because we don’t have the jobs in Bloomington-Normal to support that upper end of the market. The prices—I like to say they’ve corrected,” he said.
It was a different story last year. The average price of an existing home sold in the Bloomington-Normal market and surrounding areas rose 4.4 percent, to $168,861 in 2017. This year, average prices are down slightly (around $163,590).
2017’s rising prices were unusual and were not likely to continue in 2018, said Mike Doherty, an Illinois Farm Bureau economist who’s studied the Bloomington-Normal economy.
“I’m skeptical because I’m seeing the decline in the labor force numbers. We’ve got fewer people in the labor force, and our employment numbers are not bouncing back to higher levels, so it’s kind of hard to imagine where would future gains in those housing prices come from,” Doherty said.
That said, Doherty doubted that State Farm’s job cuts would have a significant negative impact on the overall housing market.
“I would think it’ll soften it just a bit, but the net change of jobs is in the hundreds, so a pretty small percentage of our labor force. We’ve got 90,000 people working here in Bloomington-Normal,” he said.
State Farm uncertainty has lessened in recent weeks, Armstrong said, noting a period in late June when a “lot of people found out if their jobs were safe or not.” During a three-week stretch from June 20 to July 11, Armstrong said 199 homes were sold—a “significant increase” from the 162 during that period in 2017. And the median price of those sales was $230,000, way higher than the market overall, he said.
“It’s a different type of buyer. It’s the buyer who says, ‘I’m safe now,’” Armstrong said.
There are also rumblings that State Farm’s job cuts won’t be as deep as initially expected, Armstrong said. Indeed, State Farm confirmed in late June that its overall IT job cuts companywide would be fewer than the 500 figure that was announced in March. Location-specific numbers are not available.
Across The Market
On the lower end of the market, things are moving fast.
Gabriella Harnish of Normal and husband put their two-bedroom ranch home on the market this summer, looking to get something bigger to accommodate their growing family.
They thought it would take four or five months to sell. They sold it in four days, with multiple offers.
“It was nice having it sell quickly, because that meant we knew what we could be looking for (to buy),” she said.
One reason for quick sales is low inventory, meaning there aren’t many homes on the market in certain price ranges. There are around 765 homes on the market right now, up about 12 percent from summer 2017 when inventory was unusually low, Armstrong said.
Experts say a market is “balanced” when it would take around five months to sell all of the homes currently on the market, also known as the absorption rate. Some lower price ranges in Bloomington-Normal have just two or three months of inventory, Armstrong said. That imbalance makes it a sellers’ market. (Even the $400,000-plus range has four months of inventory, he said.)
Harnish and her husband were finally able to find a home they both liked. They’ll move in next month.
“We were looking for something that was move-in ready but within our price range, so that was a little difficult because some of those homes in the lower price range need a lot of work,” Harnish said.
And you’re in luck if you’re selling in the $150,000 to $180,000 range—in the sellers’ market—and looking to move up and buy something over $300,000 where prices are falling, said Monica Bullington, an independent agent at Re/Max Rising in Bloomington, who handled Harnish’s sale and purchase.
“That’s a really good place to be. You can sell your house pretty quickly and really have your pick of the houses at that higher price range,” said Bullington. “You get the opportunity to have it both ways. Alternatively, if you’re selling in more of a buyer’s market, where you have to compete and be aggressive, you might take a loss on that. And then you’re buying in a very competitive market if you’re downsizing.”
“State Farmers perhaps might be downsizing from those large houses into more modest family-sized homes, so you just have to know what you’re dealing with so you can make the right decision,” she said.
New construction continues to struggle.
“There’s basically no new construction going on at all,” Thompson said. “That is the segment of the market that is completely gone. It’s kind of crazy.”
As recently as 2010, McLean County saw 225 newly built homes sold, according to Armstrong. Last year it was just 137, and only 42 sold in the first five months of 2018, he said. One reason, he said, is because of those higher-priced existing homes becoming more affordable.
“That 2,400-square-foot house that you can build for $330,000, when you can buy it for $290,000 existing … if you can save 6-7 percent and buy existing, why wouldn’t you do that?” Armstrong said. “There are certain people out there that just don't want anything but new. They don't want to live in somebody else's house. So those people are willing to pay 6 or 7 percent more. They're not willing to pay 15 percent more.”
So why can’t homebuilders just build cheaper houses, to fill up inventory in those lower price ranges?
Land is expensive, Armstrong said, particularly in farm-fertile McLean County. That leaves cutting corners on the construction side—skipping a fireplace, cheaper interior finishes—to lower the overall cost.
You can’t build a home for anything close to $125,000, Thompson said.
“If there’s a place where we need more houses, it would be in those very low price ranges,” Thompson said. “But that’s tough to create.”
A closer look at housing sales in McLean County, according to data provided by BNAR President John Armstrong. These data are different than the monthly BNAR sales data reported each month, which includes sales in both McLean County and nearby counties.
Data for 2018 is through May only. June data is not yet available.
WGLT depends on financial support from users to bring you stories and interviews like this one. As someone who values experienced, knowledgeable, and award-winning journalists covering meaningful stories in central Illinois, please consider making a contribution.