Fritz Pfister

Another mixed bag this week for the local real estate market. The market is adrift not knowing which direction it wants to take. The 94 sales pending this week were the fewest since the week of St. Patrick’s Day. The 132 new listings taken by local Realtors were the most of any week this year.

Although there was a surge in new listings this past week the 1698 homes listed for sale today are the fewest since 2006 for this date. Good news for home sellers. The number of competing homes is down. The bad news is that closed home sales are still running behind last year, down 6.4% year to date.

In today’s SJR there is a report that a couple of aldermen want to repeal the new building permit ordinance changed just last month. Pro and con arguments were presented by both sides, however it won’t really matter until the stagnant building market picks up steam. There were only 14 single family building permits issued the first quarter in Springfield. The 97 single family permits issued in 2008 were the fewest since 1982.

The slowdown in building is being reflected in lot and non-farm land sales. Year to date the 40 closed sales are down 46.6% from 75, and the closed dollar volume is down 73.3% to $1.6 million from over $6 million this time last year. At the current rate of sales the 537 lots, and non-farm parcels represent a five year inventory. This is causing residential development to grind to a halt. There’s plenty of unsold lots for builders to choose from when they obtain a building job, or want to spec a home.

It’s a vicious cycle. The key to the real estate market is jobs, and nearly one in four jobs is tied to housing. Employment in construction is probably at its’ lowest level this decade. Many new home builders are concentrating on remodeling jobs. According to local lenders many of the record numbers of families that have refinanced have pulled cash out for remodeling, which is good for builders, at least for now.

One of my greatest concerns is demand for housing, where will it come from? Jobs? What jobs? Future demand will also be stifled if interest rates go up, and they will some day, with record numbers of homeowners having remodeled and locked in at 50 year low rates. Very few will want to make a move if there’s any significant uptick in mortgage rates.

Just in time for the slowing economy comes the state of Illinois with proposals for fee increases, and a 50% income tax increase on individuals, and corporations. It is quite a dilemma for government to try and figure out how to dig out of the $11 billion hole, continue to provide services, and to pass a capital plan to rebuild our infrastructure.

A plan is being floated to raise or implement taxes on video slot machines, soda pop, alcohol, shampoo, and tobacco products. The hiring of a private company to run the lottery, maintaining ownership, is projected to raise $200 million annually, because a private company could run the lottery more efficiently. Really? A private sector company can run something more efficiently than a bureaucracy? Go figure.

These state leaders have just made my point. Bureaucracies are inefficient, a report stated some departments have as many as 27 assistant directors, spend lavish amounts commuting between Springfield, and Chicago, and right here on WMAY a state employee reported anonymously that the state is not serious about spending cuts by rattling off numerous areas where massive savings could be realized.

My point? We don’t have a tax problem we have a spending problem. You see the adds from unions showing our senior citizens saying the cuts being proposed will hurt them. How could the government do this to them? Some how I believe this is a gross exaggeration, and if so, despicable advertising. Their point; raise taxes to save the elderly, the children, the poor, all God’s creatures depend upon government don’t you know? Don’t be fooled by the propaganda war used to justify tax increases.

This I do know, Illinois is a leader in out migration, if you pass fee increases and income tax increases on business and families, more jobs will be lost, more people will move out, and the tax revenue projected to be generated will not materialize.

Here’s the problem, just look at the proposed cigarette tax hike of $1 per pack being projected to raise an additional $21 million dollars a year. In my opinion there’s not a snowballs chance in hell this will happen. Many will simply quit smoking, while the others will stop buying their smokes in Illinois. Missouri’s per pack tax is 17 cents, Kentucky’s is less, Illinois would be $1.98. Just like smokers, businesses and families will seek out financially friendlier places to live.

Illinois will need a capital program just to build new bridges for people and companies leaving the state, and for the daily commuters doing all their shopping in neighboring states. Just look at the retail boom in the counties surrounding Cook when the sales tax was raised to the highest in the nation.

It will be an interesting end to May to see what budget plans are passed. Take the easy way out and raise taxes, and fees on everything you can get your hands on, and Illinois will join Michigan, California, and New York on the endangered species list.

Jobs are the key to home sales, the ability to get sold, and to home prices. Raise fees and  taxes, and jobs will be lost, as will potential buyers of homes. The solution? Time to get serious about spending cuts in inefficient bureaucracies, and unnecessary programs. Then lower taxes to make Illinois more appealing for business.

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