On my weekly radio program the warning was issued in October of 2005 that the supply of homes for sale had crested the record high. While numerous home owners, builders, and Realtors were unaware, remaining in a state of false euphoria about record numbers of home sales, and rapidly rising prices, reality was approaching.
In 2005 nearly 500 building permits were issued in Springfiled for new home construction; in 2008 only 97. The inventory of homes listed for sale with Realtors jumped from the new record high of over 1500 in October of 2005 to over 2000 by August of 2008. Today nearly 1700 homes continue to be listed for sale. The inventory has trended downward, however at a very slow crawl compared to demand.
Home sales fell by over 500 down by 13.5% in 2008 over 2007. January and February home sales continued the decline in demand with March rebounding to save the first quarter. Sales in March were up 34 closed sales to 288 or by 13.4%. The first quarter ended with 648 home sales down by only 3.2%, however represents the fewest first quarter home sales since 2000. The same is true for March, although up 13.4% to 288 home sales, still 31% fewer than the record 423 closed in March 2006, a mere three years removed.
That sets the table for today’s housing market in Springfield Illinois. The second highest supply of homes for sale on record, the weakest demand since 2000.
Why the spurt of activity in March? The Federal Reserve pumped over a trillion dollars into treasuries that resulted in the lowest interest rates on record. The stimulus bill created tax breaks for first time buyers. Although the median sale price, down in 2008, rebounded in February and March to settle at $105,750 for the first quarter, Springfield remains one of the most affordable markets in the state and nation.
Why wouldn’t demand be stronger with this potent combination of interest rates, affordability, selection, and tax incentives; result in even more home sales? Consumer confidence is at a record low. People without confidence don’t rush out to make major purchases when they are not confident about the future. Consumers of Springfield just proved the point. April home listings under contract were running about 8% behind 2008.
How can this be, closed sales and pending sales down in the first quarter? What could cause such low consumer confidence in the face of the most favorable home buying conditions? The reasons are numerous.
People are concerned about the security of their jobs with unemployment rising to 8.5% and predicted to go higher. Regardless how secure people feel in their employment, they fully realize the impact of higher unemployment upon their business. They may not lose their job, however they realize finances will become tighter.
The uncertain outcome of the Obama administration and the Democratic congressional response to the financial crisis has consumers scared. Dating back to the misdirected seven hundred billion dollar TARP program, initial billions in bailout money for AIG implemented by the Bush administration, the Obama plan quadruples down on the Bush initiatives with the Omnibus spending bill, eight hundred billion dollar stimulus bill, and now their first budget of three point eight trillion dollars under the pretense that government is the solution to the financial crisis. If they are right it will be the first time in history.
The non-partisan Congressional Budget Office, contradicts Obama economists by predicting this spending will cause nine trillion dollars in additional deficits by 2019, will require eight hundred and six billion for interest only payments, and will cause the GDP to shrink. Obama economists predict a growing GDP of 3.5% by 2012 with deficits of only one half trillion dollars annually. Either way there are massive deficits on the way, and consumers are taking a wait and see approach, because they don’t know who is going to pay the tab. Consumers understand huge tax increases are probably inevitable, enslaving generations to come.
In my opinion the federal government should not be borrowing, running up deficits, to inject liquidity into the market, and to provide bailouts to failing companies on the taxpayers dime. A more prudent approach would be to cut personal income taxes, capital gains taxes, and corporate taxes to encourage investment into the private sector. The Obama approach is a repeat of the failed FDR approach that extended the Great Depression, and as Secretary of Treasury Morgenthau under FDR said; we have spent more money than ever and it has not worked, unemployment is still the same as when we started (19%), and we have a load of debt to boot.
Now comes the state of Illinois under Quinn and Democratic control making similar proposals. An increase in income, and corporate taxes by 50%; combined with another round of fee increases, and sin taxes, will only extend the economic woes of Illinois. A double whammy if you will from both the Federal and State governments that threaten the economy, and will without question extend the recession.
One would guess in hindsight, that it was truly amazing so many homes did sell in March, although down 31% from the highs.
If government were serious about building consumer confidence instead of building constiuenties of dependent voters, government would make doing business in the U.S. and Illinois more affordable.
This would allow the capitalist free market, that has produced the most prosperous nation on earth, with the highest standard of living in the world, to correct itself. Would businesses fail? Yes, but they would be replaced with others that would flourish. This is the natural cycle of free markets. This would be a much shorter route to economic recovery than government intervention.
There are two economic ideologies; one involves the belief in the individual operating within a free market, and the other is the belief government can provide the solution. I would bet on the free market and trust in the indivdual as the solution. Regrettably those in power believe government is the solution. On the Federal level the adminstration believes in the Kanesyan theory that government spending produces a stimulus to the economy, when in reality government spending removes from the private sector money that would have been invested in growth.
As Kane said, government spending will provide stimulus for the short term. When asked about the long term, Kane replied; who cares, we won’t be alive long term. God help our future generations.
On the state level the governor and legislature still believes government is the solution to all problems, and instead of cutting spending for programs that are ineffective, outdated, inefficient, and unnecessary; they propose gargantuan tax increases.
And some question why there are 1136 Tax Protest Tea Parties scheduled on April 15 throughout the nation.
As consumer confidence goes, so goes the demand for housing. There doesn’t appear to be much to inspire consumer confidence as Americans watch the unfettered expansion of government, growth in government spending to 27% of GDP, that will confiscate their earnings, and limit their liberty. Consumers are rightfully concerned.
Fritz Pfister is a Realtor with RE/MAX Professionals Springfield IL. and a leader in the local real estate market hosting a one hour radio program, now in its’ 13th year. With nearly 2000 real estate sales, Fritz is recognized as a market expert.
Fritz’s website is
SpringfieldHome.com
[tags]consumer confidence, demand for housing, Springfield Illinois[/tags]
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