The Future of the Springfield Illinois Housing Market
August 29th, 2010Many folks were shocked to learn of the drastic slowdown in home sales in the Springfield area this summer. The housing market’s cash for clunkers moment following government intervention into the market with tax incentives to purchase a home. July’s 223 closed home sales were more like December activity than what this normally steady and stable market usually experiences.
The slowdown continues with August closed home sales with two business days remaining with a mere 189 closed, barely more than half of August 2009’s 370. The month will probably finish down 30% to 35% from last year. The 304 sales pending so far in August is a marked improvement, yet still quite a ways from the 445 sales pending posted in August of 2009. Expect sales pending to be down 20% to 25% by months end. This means September closed sales will be down.
This means we have evolved into a new norm. Due to the economy, market cycles have been obliterated. How can this be said? The slowdown in sales has occurred when interest rates have dropped to the lowest levels in our lifetimes. Historically that would mean home buyer activity comparable to a shark feeding frenzy. This time the reaction is like the turnout for a Tiny Tim concert at the convention center.
The reason is jobs and consumer confidence. The Springfield area has lost 1400 jobs the preceding twelve months, and it is forecast that an additional 1400 jobs will be lost in the next twelve months. Those that have jobs are scared they may be next to lose theirs, their confidence is at near record lows, and are refinancing in lieu of selling and buying.
The economic policies of the Obama administration are to blame. When the president stated he wanted to fundamentally transform America, nobody was sure what he meant. Now we know. The massive pieces of legislation in health care reform, and financial regulatory reform are, and will prove to not accomplish their stated purposes, and at a cost that will drive the country closer to insolvency.
People sense this and have changed their habits as a result. Disposable income expenditures, those that are not necessary, have been cut. The savings rate has doubled since the downturn in 2008, and credit card debt has fallen to an eight year low. With the value of everyone’s home suspect people are no longer using perceived equity in their homes as a piggy bank that could be paid back with rising home prices. This means consumers aren’t spending which accounts for 70% of economic activity.
Confidence is down in part due to the abject failure of the Stimulus bill that was to have created 3.5 million jobs by the end of 2010, and was to keep unemployment below 8%. The Stimulus resulted in the creation of 400,000 government jobs to be paid for by a private sector with nearly 3 million fewer (jobs) taxpayers since the Stimulus was passed.
If the administration was this wrong about the Stimulus, it is logical they are wrong about health care savings as families watch health insurance premiums skyrocket, and 100,000 pages of rules being written that will have government bureaucrats involved in every aspect of their health care system, costs, and decisions. Not a big confidence builder for the folks.
The GDP has shrunk two quarters in a row, unemployment is getting worse which signals there is no recovery underway and we are likely headed for another recession. I don’t believe we ever recovered from the initial downturn with 15 million people out of work. Maybe technically we recovered but only Wall Street and major banks have benefited from Obama policies, not the middle class or main street.
The national economy will not improve as those without private sector experience continue down the path of wealth redistribution, higher taxes, bigger deficits, and more spending. Businesses are not going to hire until the costs of this fundamental transformation is known. Obamacare and FinReg are , and will prove to have devastating economic consequences and both should be repealed, however they are here and it will take a long time to undo the damage. The third shoe in the transformative process is Cap and Trade. Should this industry, and jobs killing legislation pass in a lame duck session, then depression becomes a reality.
The state of Illinois is even in worse shape than the federal government. Why? They can’t print money. With the stumbling, bumbling Quinn administration and campaign flip flopping like someone who doesn’t know what to do, or what they are doing, Brady will probably win the election.
That might not be such a prize if Democrats retain control of the legislature and stymies real spending and tax reform. The mandates of the Obama legislation is going to be catastrophic upon the states, and Illinois especially. If Illinois were the person who fell overboard, the Obama administration is throwing them an anvil and not a life jacket. By 2014 over 1.3 million additional people will be forced onto Medicaid by Obamacare, costing Illinois an additional $1.6 billion after the feds pay 50% of the increase for a temporary time period.
The bottom line is our federal and state governments are making the situation worse. The saying the hurrieder I go, the behinder I get comes to mind. Until there are people running these governments that understand sound economic principles, backed by a legislature with the cajones to implement the necessary actions, our economy will continue to suffer.
In my opinion this means the Springfield Illinois housing market will remain in this government driven evolved market for years to come. A shrinking economy, double digit unemployment, low consumer confidence, small bussinesses beseiged by over regulation and taxation will be the result of liberal economic policy. It will take years to reverse the damage.
Liberals say it was George Bushes fault and his economy was worse as a result of tax cuts. That belies the truth that there were 52 consecutive months of job growth with unemployment at or below 5% for five consecutive years. The financial system collapsed, once again due to government legislative social engineering resulting from the CRA abused by HUD, Fannie Mae, and Freddie Mac. But that is an argument for another day.
Be prepared to work twice as hard for half as much. The American entrepreneur, worker, and small business owner will survive and be the one’s who ultimately lead America back to prosperity. That however will only happen with a change in leadership in both the federal and state governments. Pray this begins in November or your children’s future is being written today.
The opinions expressed here are solely those of Fritz Pfister, or identified sources, and not necessarily those of RE/MAX Professionals of Springfield, or RE/MAX International.
