Fritz Pfister

Harry Truman said there’s no such thing as the future only history that hasn’t happened yet. That means we can probably tell where we’re headed by looking at the past. On a side note several Realtors from around the country I was chatting with said, anyone with half a brain should have known there would be a slowdown after the tax credits expired. Thanks, that makes me feel special about my predictions from back in December. At least I know I have half a brain.

Since the tax credits expired on April 30th here’s how the local housing market has performed compared to the six final weeks when the tax credits were available. Closed sales up 7.15%, sales pending down 50.41%. Compared to the same six weeks in 2009 closed home sales up 31.71%, sales pending down 31.55%.

We can classify this as a slowdown with sales pending down over 50%.  Fewer closed sales will start appearing in July, because there’s still too many homes that were sold pending in March and April that will close in June, giving us a false impression about today’s sales activity. 

You would never know it by just reading or listening to the news. That’s why this week I bring you; what did you say? This is a comparison between what is being reported to what is really happening. All this in the context that we know how housing sales perform will be determined by jobs, and consumer confidence.

Let’s start at home with the June 8th SJR headlines; Illinois Bond Rating Lowered.  Seems Moody’s rating service doesn’t think too much of our government’s inaction toward resolving the budget crisis. This is bad news, the cost of the heroin just went up for the junkie.

Then in the Business section big headlines; New home construction rising. Jon Reynold’s president of the local home builders attributed the jump in building permits to pent up demand and consumer confidence. Residential permits nearly tripled this April from last April, and year to date more than doubled.

What did you say? Pent up demand? Consumer confidence? Jon, I love you man, but the end of April was the deadline for builders to be grandfathered to avoid the EPA’s green building mandates which will drive up the builder’s cost about $20,000 on a 2000 square foot home built on a basement. I say that was a pretty strong incentive to buy a building permit whether you were ready to build or not.

Then on June 10th in the SJR; Recovery on track, Bernanke tells congress. What did you say? With over 15 million Americans out of work, and the Bureau of Labor Statistics reporting;

In the week ending June 5, the advance figure for seasonally adjusted initial claims was 456,000, a decrease of 3,000 from the previous week’s revised figure of 459,000. The 4-week moving average was 463,000, an increase of 2,500 from the previous week’s revised average of 460,500.

In addition Ben, there are 4.3 million households in foreclosure while the SJR reported the number of customers applying for a mortgage fell to the lowest level in 13 years last week. Guess Springfield isn’t the only market to have a Cash for Clunkers style hangover. Yo Ben, I say you’re doing a little cheer leading more so than fessing up with congress and the American people. How do those rose colored glasses fit?

In the same edition of the SJR on the 10th was a George Will editorial with the title; One Nightmare of a National Jobs Report. Outstanding article, however what wasn’t reported is what’s more important. Articles  by economist Art Laffer; 2011 “Tax” Collapse Coming (he the designer of the 1980’s economic recovery), Roubini: US Nears Disaster as Euro Zone Faces Zero Growth (he of the accurate forecast of the financial meltdown in 2008), and Bernanke; Fragile Economy Can’t Bear Spending Cuts, Tax Hikes Now, all reported in MoneyNews.

All three articles are important but let’s focus on the highlights of Laffer’s article;

Tax hikes expected to hit after the expiration of the Bush tax cuts will cause today’s corporate profits to tumble next year- probably right after a stock market collapse. My best guess is that the train goes off the tracks and we get our worst nightmare of a severe ‘double dip’ recession.

What did you say? That sure doesn’t sound good, what do you base this upon? Paraphrasing Laffer; Due to the tax cuts that went into effect in 1983 the economy took off like a rocket, with an average real growth reaching 7.5% in 1983 and 5.5% in 1984. Mr. Obama’s experience with deferred tax rate increases will be the reverse.

Incentives matter Laffer says. That’s why as much income is being pushed into 2010 giving the impression of more income than there really is, which will result in less income in 2011 when taxes are higher. If you thought deficits and unemployment have been bad lately, you ain’t seen nothing yet. Laffer added when government taxes people who work and pays people not to work, the result will be fewer people will work.

Then today came the mixed bag of news by AP in the SJR that; Plunge in retail sales could slow recovery. What did you say? Recovery? What recovery? The good news spouted everywhere yesterday was that consumer confidence was up. When I scanned the Commerce Department for the consumer confidence index I discovered it was the consumer ’sentiment’ index that was up. Can you tell the difference?

Just as the AP report stated this could signal a return to more modest growth after two strong months fueled by tax refunds, rebates for energy efficient appliances, and tax credits for home buyers. Gee do ya think? Guess Laffer is right incentives do matter.

My confidence in the Obama economic policy is zero. Remember what old Harry Truman said about the future, it’s only history that hasn’t happened yet. If Laffer, Roubino, and Bernanke are right and the economy turns down, as history proves when taxes are increased, then we have trouble ahead. Yes I know Clinton raised taxes and the economy grew, but that was during the tech boom. Please share with me any boom within our economy today, besides the growth of government.

In the past due to the steady, insulated nature of our local housing market I have recommended to prospective home buyers not to buy if they weren’t confident they would be in the home five to seven years, and at bare minimum three years.

Based upon current conditions, the policies or lack thereof by current state and federal governments, I am now advising prospective home buyers not to buy unless they are confident they will be in the home seven to ten years, or a bare minimum of five years, and hope that leadership changes at the first possible opportunity so that the economy can be turned around. It’s not going to be easy to fix the economic mess being foisted upon us by the dysfunctional state of Illinois, and Obama failing economic policy.

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