Could there be a Crisis in Confidence Looming?
January 17th, 2010Most people would agree that from the announcement of the financial crisis in September of 2008 through the first months of the Obama administration, the country was griped with uncertainty at best, and fear at worst.
There are tell tale signs one can observe from their own local vantage point. We watched the housing market shrink the fourth quarter of 2008 through the first five months of 2009 in Springfield, and then rally on the first time buyer tax credits, and record low interest rates through the end of the year.
The first tell tale sign the rally may be in trouble was when homes going under contract in December fell by 3.7%. Not a steep decline, however a decline compared to an awful month. Two weeks does not make a trend, however home listings going under contract this January falling 28% below the same time in 2009 is an attention grabber. Both in spite of tax credits being extended, expanded, and the continuation of record low interest rates. Why?
Beyond tell tale signs there is hard evidence of economic performance. There has been a flurry of economic reports. First was unemployment at 10% in December with the unemployment, underemployment, combined with those who gave up looking for work over 17%.
Then the unemployment report was followed by these reports; December set a new record with $91.85 billion in deficit spending, consumer debt declined while savings increased, foreclosures set a new record high in 2009, retail sales fell in December, the number of newly laid off workers rose unexpectedly last week, and consumers buying power declined because workers saw inflation adjusted weekly wages fall 1.6% last year. The biggest drop since 1990.
None of these reports are confidence builders, either in the economy or Obama economic policy. The administration was stung this week by an AP investigative story that proved Stimulus spending on infrastructure had no impact on unemployment. Verified by five separate university economists, AP reported whether a county received Stimulus money, or received none, there was no impact upon the unemployment rates for the counties. More evidence the stimulus is not working.
Now the Obama administration is proposing a second Stimulus called The Jobs for Main Street Act. Most Americans recognize that if something doesn’t work you probably shouldn’t do it again. It seems the administration continues to hold that Keynesian economic theory is valid, in spite of real world evidence to the contrary.
Polls prove that Americans do not want the proposed health care reform bill. By Obama pressing forward, ignoring the clear wishes of the public, he further erodes confidence in government.
The tell tale sign people don’t want this bill can be found in Massachusetts where Democrats outnumber Republicans three to one. The Republican is running on a platform opposed to the health care bill and now leads the Democrat in the bluest of states in recent polls. The hard evidence is the president’s job approval rating falling below 50% even on the left leaning CBS poll.
This week president Obama proposed a tax on major banks. His excuse? We want our money back. This is total deception. The major banks have paid back TARP money with interest. It appears the president is trying to use the timing of populist outrage over bank bonuses to implement the tax.
The presidents actions make no sense. One week bankers are called to the White House and scolded for not loaning small businesses more money, and another week attacks the assets of these banks with billions of dollars in taxes. These banks will either have less money to loan small businesses, or will pass along the tax costs through fees or higher interest rates.
So perhaps the small tell tale signs in the early going for the housing market in Springfield Illinois with home listings going under contract declining, at a time conditions couldn’t be better to buy a home, is prescient. Obama failing economic policies, falling job approval, combined with his denial of the public will on the health care bill, is resulting in falling confidence in government, the economy, and in the slower pace of sales.
The only other contributing factors would be bad winter weather, and spent demand as families rushed to beat the tax credit deadline before it was extended last November. Granted the weather was bad, however for only two of the seven weeks sales pending have declined.
I guess people without jobs don’t care if the weather is bad, if the government is paying you to buy a home, or if interest rates are at record lows. They can’t buy homes.
It appears those who have jobs, also have a crisis in confidence, and are not buying homes. Or there just isn’t enough of them left to take advantage of this golden opportunity. The next couple of months will provide us with more tell tale signs, and hard evidence.
If president Obama rams through the health care bill against the wishes of Americans, and his economic policies continue to exacerbate the bad economy, the looming crisis in confidence may lead to a double dip recession.
The opinions expressed here are solely those of Fritz Pfister, or identified sources, and not those of RE/MAX Professionals Springfield, or RE/MAX International.
