Change occurring In Real Estate Markets

What a mixed bag of information relating to the housing market. Home builders slow the pace of building to 6 year lows, and interest rates are at 2 year highs. In spite of this, a record number of homes will probably be sold again in 2005.

Reporting from a medium size market in the Midwest, Springfield IL., we just might represent a microcosm of what is occurring nationally. Our market has the good news of a record 8th straight year in the number of homes sold, and our sales pending under contract are running 21% ahead of last year at this time. All sounds good for home sellers so far, right?

What the national home builders are reporting is true here as well, homes are sitting on the market longer before selling. Why? Can't say for the nation, however our market has the largest number of homes listed for sale in history. Forget interest rates as the major impact player, and look to supply versus demand.

Our local economy is on solid footing with unemployment below 5%, average income above state averages, and one of the most affordable housing markets in America. Why are so many people selling? Tough question to answer. Many are from excess builder inventory, many are sellers that have built custom homes and need to sell their current home, many have purchased another home before selling their current home. Regardless of where all these home sellers have come from, there are enough homes on the market to meet demand without listing another home for sale until April.

What happens when supply exceeds demand? What happens when interest rates rise? Both combine to stabilize prices. We've heard the stories of 55% appreciation in some markets, but not here. During the boom years of the 1990's the Springfield market appreciated a total of 9.9%, for the entire decade! Things have changed with the cost of new construction going up, and we are now realizing some whopping 4 to 6% annual appreciation gains!

What we are experiencing here in the Midwest will probably be felt nationwide. First prices flatten, and then fall. Of course it depends upon where you live, the higher your appreciation rates have been the steeper the fall, the more moderate your appreciation rates are, the more moderate the fall in prices.

If you are considering selling in one of the bubble markets to maximize your gain, you had better hurry before rates and inventories increase. After you sell, come on out to Springfield, IL. where prices are affordable, the people are nice, the schools are good, and where we have plenty of homes for you to choose from.

To Those Serving Today

The day this is written is November 11, 2005, Veterans Day. This week I digress from real estate to honor those who make it possible to even have a real estate market, and the quiet enjoyment of home ownership.

Thank you to all veterans past, from the trenches and mustard gas of WWI, to the WWII greatest generation that served unselfishly to free nations and mankind, to the Korean troops who when surrounded on all sides and outnumbered 100 to 1 said "They can't get away from us now!", and to the veterans of Viet Nam, who so bravely and honorably served yet had their mission ruined by a biased liberal media, and dishonest service members. Thank you all, you are appreciated.

However the message today is for those who currently serve. The American Family is behind you, is proud of you, believes in your mission, and will see you through. Pay no attention to the politicians that call your commander in chief a liar without evidence, who tout intelligence was manipulated to obtain permission to go to war, and pay no attention to the liberal press and media blasting these false messages daily to the American people. Pay no attention to polls that say your president has lost support for you and the war. Pay no attention because the silent majority is not counted in these polls.

Today and everyday I pray for your safety, and for your victory over terror. Pay no attention to the biased media attempting to influence America to their view, the silent majority despises them for their actions. The media, and liberal politicians will do and say anything for their own personal gain, they care for nothing other than power, and duty is a foreign concept to them.

To you who serve today, thank you for rising above the din of the liberal media, the selfengrandizing liberal politician, and answering the call to duty. The terrorists are evil and have taken a vow to kill Americans, their families, and their values of freedom and democracy. Yours is a noble mission.

To you in the silent majority, understanding what is at stake, the very survival of democracy and freedom, it is time to be heard. Let those who serve today know of your love, honor, respect, and support for them.

To you who continue to obstruct and subvert the effort toward victory, either form your elected positions, or liberal media, I say stand down this Veterans Day as we salute those who serve out of duty, and not for personal gain, as you selfishly do whenever you attack the mission of brave and noble Americans in service.

To you who serve today, Thank You, and God Bless you. You are appreciated by more than the silent majority. Ask your fellow veterans who have seen the gleam in the eyes of an oppressed man, woman, or child experiencing the first taste of freedom, and know with your victory, the children of tomorrow can have that gleam in their eyes.

Tax Advisory Board Misses Objective

The Presidents Tax Advisory Board was assigned the task to review and recommend changes to the internal revenue code. In other words reform the code, or replace the code. The board missed their mark by recommending the reduction of the interest mortgage deduction, and the elimination of state income tax, and property tax deductions. Are raising taxes their idea of reform?

What an incredible waste of time. These proposals should be dead upon arrival. These recommendations will cause devastating harm to the housing market, increase taxes, and dramatically lower home values.

If one will remember the housing market was the impetus that kept the economy afloat following the bleak days of 9-11, during an ongoing slowdown in the economy the president inherited. One in every four jobs in the country are related to housing. To recommend actions that would harm this critical element to the economy is foolhardy. Just as housing kept the market afloat in bad times, it can also bring it down in good times. The housing market is already under significant pressure from rising interest rates, and in many markets from satisfied demand. In other words housing is already heading toward a cyclical slowdown.

If the mortgage interest deduction proposal passes, a conservative estimate is that home values will drop 15%. If this is true many homeowners will suffer the fate of owing more than their home is worth, property taxes will decline with falling property assessments (eroding local governments tax revenues), and mortgage lenders may see increased foreclosing rates resulting in losses of significant proportion. Many homeowners budgeted the mortgage interest deduction when purchasing their home, and may not be able to afford their home if the boards' proposal is passed into law. At the very least, every homeowner in the 15% tax bracket up, will have less disposable income to spend on goods and services. There is no doubt this proposal negatively impacts the purchasing power of potential homebuyers which will result in lower home prices.

What a brilliant idea to eliminate state income tax and property tax deductions! Tax money you pay on taxes! After all, you can eliminate two lines from the tax return form. What a brilliant reform strategy. The bottom line is that dependent upon your tax bracket it is going to increase your federal tax liability, further decreasing the disposable income of families that could be spent in the economy on goods and services.

It seems simple. Why has the economy grown so dynamically in the face of two devastating hurricanes? Why has the economy added millions of jobs in the past two years? Why is unemployment down to 5%? Why has the projected budget deficits fallen 40% below estimates? Tax cuts. When American families get to keep the money they earn, instead of sending it to Washington, they spend the money on goods and services. This creates more demand for goods and services, which creates more jobs, which generates more tax revenue to the government, than any tax increase could ever generate.

The assignment was to reform the tax code, not to raise taxes. The President should throw the Tax Advisory Boards recommendations in the trash. The problem with this board is they are retired congressman and senators living off fat pensions, and don't have to earn a living laboring in the economy. Even in retirement politicians can find ways to spend other peoples money, reminding us that you can't teach old dogs new tricks. My advice is to form a new board consisting of private sector business people that actually earn a living and pay taxes from the fruits of their labors, who understand the oppressive complexity of the current tax system.

If the President is serious about tax reform he should press the immediate passage of making the tax cuts permanent. That would keep the economy growing while the new Tax Advisory Board could come up with a lasting and meaningful reform to the current IRS Code that is simply unsustainable, oppressive, and counterproductive.

Following permanent tax cuts being implemented, then it will be time to control the spend happy congress. Republican leadership in congress, and the executive branch have failed the American citizen by allowing runaway spending. The Democrats are no better, and are waiting for the voter revolution by conservatives that are fed up with the inaction of their leaders. A golden opportunity to make real and meaningful spending decisions with a Republican controlled Presidency, Senate, and Congress has been wasted to date. If action is not taken before the congressional elections of 2006, another opportunity may not become available for decades. Enough is enough, conservatives must begin to act like conservatives or get thrown out by their ears.

Surprising Economic Resilience

This economy had every opportunity to run and hide during the third quarter of 2005. Two devastating hurricanes of historical proportion, rising interest rates, surging energy costs, consumer confidence falling to 85, and core inflation at its highest level in years. The result? An increase in growth in the economy by 3.8%, outperforming the second quarters' 3.3% growth.

The old tongue in cheek claim that economists have accurately predicted eight of the past two recessions applies to today's resilient American spirit, and economy.

What could have caused the great momentum in the economy that allowed growth during these unprecedented calamities? Consumer spending, which is surprising in the face of the purported low consumer confidence, permitted the growth in the economy. What permitted such vast consumer spending? Lower taxes.

Many have argued that the American citizen can better manage their money than the government. When a family has more disposable income resulting from lower taxes, they have shown they will spend it on products and services that keeps this economy growing.

What if we had listened to the knee jerk reaction of the tax and spend politicians saying we must raise taxes to pay for Katrina? The anti-capitalist demagogues that want to tax oil companies profits? The point here should be well taken that lower tax rates, and less government intrusion into a free market, creates jobs, and growth. The less government, the better for the economy, and American families.

My previous Blog stating that inflation could be the straw that breaks the housing markets back was well founded in history, and regrettably without a smidgen of faith in the American spirit today. It may, and probably will come to pass that the housing market cools due to increasing interest rates resulting from inflation, however I am now reminded to mix in my calculations the resilience factor of the American spirit. Professor, what weight should we give this component of the equation? The most.

If we desire to build an economy that can withstand future blows, the President, and Congress should make tax cuts permanent immediately. Our future is very bright when contemplating a citizenry that is permitted to wield the economic power of their labors, in lieu of government politicos that nary earn a dime, however spend yours freely.