Fritz Pfister

One year ago we were in the stretch run of the presidential election. Everyone was in shell shock and apprehensive following the financial markets meltdown in September and the passage of what has proven to be a bad deal for the American people; TARP.

The local housing market was in a slowdown following four consecutive record years with home sales exceeding 4000 annually for the first time on record. The meltdown, and the dire predictions of a complete financial collapse took its toll on the local housing market to end 2008 and to begin 2009. The first four months of 2009 saw home sales fall another 10% from the previous year.

Along comes the Stimulus plan which included an up to $8,000 tax credit for first time home buyers. It took some time to get the program up and running, but by May, sales pending jumped. This has now resulted in five consecutive monthly gains in home sales, June through October, year over year.

The tax credit proved to be extremely effective, however don’t overlook the role record low interest rates played in the number of homes being sold. At the end of business on October 30 local Realtors had reported 318 closed residential listings for the month eclipsing the 290 from last October, with more sales yet to be reported. October could finish up by 20% from last year. Not surprising considering the state of shock the market was in during October of 2008.

Has this historically stable Midwest market returned to normal? The 3088 closed home sales eclipses last years number by 33 sales, up 1%. Not bad for a market predicted to fall another 11% this year.

However does this jump in sales reflect normal market conditions, or is it a false market driven by government incentives? In my opinion, it is a false market  comparable to the cash for clunkers program, and robbing future demand.

What other explanation can there be when unemployment is up to 7.9%, or by nearly 3% from last year. Last time I checked, people without jobs don’t buy houses. The housing market will experience weaker demand as a result. This is not a normal market, this is a natural market reaction to financial incentives, during abnormal times.

From my August 29th observations, quote; “Last week I shared with you the seven dangers facing the economy; the high risk for hyper inflation and higher interest rates, the national deficit obstructing economic expansion, Cap and Trade legislation, the cost of the proposed health care reform, rising unemployment, the high probability for tax increases for everyone, and the rising number of foreclosures.” Closed quote.

Now on this last day of October those threats to the economy loom even larger. There is not a final version of the house bill for health care reform, however a nearly 2000 page bill was released this week. Medicare will be slashed by $500 billion, including 80% of supplemental Medicare insurance. This will be disastrous for our senior citizens, however for today let’s focus on the cost.

As stated in August the cost of proposed health care is a serious threat to the economy. From this 2000 page monstrosity we know that taxes will be increased by hundreds of billions. How? Insurance will be mandatory or you’ll be fined 2.5% of your income by the IRS at tax time, small businesses will pay penalties of 8% per employee, based on the average employee income, the wealthy (which are primarily small business owners) will pay a 5.4% surtax, and all medical devices will be taxed. This will significantly impact the disposable incomes of every American, and because of the hefty tax on small business owners, millions of jobs will be lost.

Worse is that if this proposal gets passed; the taxes begin in 2010, while the actual health care program doesn’t go into effect until (after the next presidential election) in 2013. In a sleight of hand, congress is going to fund this albatross for four years before implementing the program, so that the president can claim this is a deficit neutral bill. BS, this is a budget buster and will only make a bad economy worse by raising your taxes, and driving up the unemployment rate. 

It was reported this week that the GDP grew by 3.5% in the third quarter. Don’t get too excited. About 1.6% of that growth resulted from car sales in August from the cash for clunkers program. That was a false market, making real GDP growth only 1.9% . That is better than negative growth, however too anemic for employers to start hiring. That’s why first time claims for unemployment fell less than expected the past week.

To add insult to injury the price of gas rose to the highest prices of the year. This is not good news when consumers are already trimming their spending. The price of gas reaching $4 a gallon in 2008 was the tipping point that resulted in an unprecedented pull back in consumer spending.

The distressing news this week was that consumer spending fell in September by one half percent, the first decline in five months, and the biggest drop since last December when the country was in the grip of uncertainty. It is hard to get excited about growth in the third quarter when September did an about face heading into the Christmas season. Consumer confidence fell for the second straight month in September. Folks this does not bode well for job creation, the key to home sales going forward.

On a brighter note it appears that congress may extend the first time home buyer tax credit, and maybe even expand the credit to buyers that have been in their home at least five years. At least that’s what has been proposed in the senate. Is this really good news? For the short term yes. However all this will do is continue a false market delaying a true market correction, and some day the bill will come due for taxpayers.

The Obama administration can make any claim they want, however the truth is unemployment will keep rising. These record low interest rates will rise someday when inflation takes hold, so it’s best to take advantage now. Consumer spending and consumer confidence are down. Incomes remain flat. Tax increases are probable from the state, and for sure from the federal government. Who knows what the price of gas will do.

So hold onto your hats folks, we’ve got some uncertain economic times ahead of us. My question is; why is the congress and the Obama administration so anti-growth? Why burden Americans with higher taxes and costs of living during the toughest economy since the 1980’s, and maybe The Great Depression? Does taking more money from everyone inspire consumer spending? Does raising taxes on small business leave more or less money to make new hires?

Obama’s policies are proving to have a negative impact in the jobs market. Claiming to save jobs is disingenuous, and being made as cover for the failing Stimulus plan. Doesn’t it make more sense to get Americans working again before attempting to pass radical health care reform, or unnecessary Cap and Trade legislation?

If Obama succeeds in passing this version of health care reform increasing everyone’s tax burden, pass cap and trade legislation increasing everyone’s cost of living, gas prices continue to rise because expansion of drilling for our own oil is prohibited and results in driving down consumer spending for other goods, allows the Bush tax cuts to expire increasing taxes on the wealthy affecting the engine of job growth, small businesses, how can we expect this economy to recover? Where will the jobs come from that will provide the buyers necessary for a healthy housing market?

Here are the real questions facing Americans today. What will be the incentive to take risks, work hard, and to create jobs when the government confiscates more of your hard earned money than you get to keep? Will the Obama policies taxing small business owners help or hinder economic recovery? Will another tipping point be reached when small business owners who get up to go to work to support their families, instead discover that they are getting up to go to work to support the government? What will happen then?

The opinions expressed here are solely those of Fritz Pfister, and not those of RE/MAX Professionals of Springfield, or RE/MAX International.