Mary Schaefer/Ann Londrigan
Real Estate Transactions Add $7.9 Billion to Illinois Economy
Study shows the total direct expenditures from one home sale is $28,581
SPRINGFIELD, Ill. — The Illinois Association of REALTORS® (IAR) today released new data that shows the expenditures made by buyers and sellers in connection with a residential property transaction generate a significant economic impact to the Illinois economy. According to the study, the total direct expenditures per home sale in Illinois is $28,581 for a total of $3.2 billion in annual expenditures for all home sales occurring in the state. When the economic impact among related industries such as moving and warehousing, the retail trade, and financial services factor in to the equation the net effect is $7.9 billion in the total amount of direct and indirect expenditures that are made as a result of Illinois existing home sales in a year.
The study, conducted by Chicago-based RCF Economic and Financial Consulting (RCF), analyzed typical expenses on both sides of a residential real estate transaction when someone buys or sells a home. To prepare a home for sale, the seller may pay for repairs and home improvements to make the home more marketable. A buyer will spend money after they purchase a home on remodeling, new furnishings and household items. Both parties in the home sale transaction may hire professional service providers such as attorneys and real estate professionals, as well as incur fees from home inspectors, appraisers and the title company and pay taxes to local, county and state government agencies.
“In addition to the direct expenses there are substantial economic ripple effects when a single home is bought or sold,” says REALTOR® Sheryl Grider Whitehurst ABR, CRB, GRI, president of the Illinois Association of REALTORS® and the Development and Operations Coordinator for Traders Realty in Peoria. “If the buyer purchases paint from a hardware store or moving services, for example, the hardware store and moving firm will have expenses of their own such as labor and delivery. These are just two examples to illustrate how the real estate industry affects many other industries and generates jobs, wages and salaries adding up to an economic impact that exceeds $7.9 billion annually in the state of Illinois.”
A significant share (53 percent) of homes was sold to first-time buyers motivated in part by the tax credit incentive, according to the 2010 Illinois Profile of Home Buyers and Sellers. In the RCF study, Gross State Product impact attributable to activity by first-time buyers was $1.9 billion.
RCF analyzed Illinois home sale transactions of residential attached and detached single family homes for a 12-month period from fourth quarter 2009 to third quarter 2010. Researchers obtained expenditure data from a survey of 415 Illinois home buyers and sellers during the same period as well as a survey of title companies, research reports and other data sources.
The expenditure analysis considered various industry categories including construction, retail trade, transportation, finance and insurance, professional and real estate services, and public administration. RCF applied an input-output model developed by economists with the University of Illinois Regional Economics Applications Laboratory (REAL) to determine how money spent in one industry is paid to other industries which in turn is spent in other industries. The end result is a multiplier effect on the economy of $4.7 billion in indirect expenditures from annual Illinois home sales.
“The research really underscores the importance of the housing market on the health of the overall Illinois economy. If there are fewer home sales in a given year, there will be an impact across many related industries and the economy,” says Whitehurst. “While the Illinois employment picture has shown some improvement in recent months, significantly stronger private sector job growth and improved consumer confidence are paramount to a housing market recovery.”
She added: “There are several key issues being considered in Congress that can help or hurt the housing market and the economy. Top on the list is improving liquidity in the lending market so people who want to buy a home and have the financial ability to do so are not locked out. This situation can be improved by increasing the conforming loan limit in the Chicago region above its current $417,000 limit giving banks the ability to sell these healthy mortgages to Fannie Mae and Freddie Mac.”
REALTORS® also are urging Congress to preserve the mortgage interest deduction (MID), which has been in the federal tax code since 1913 and helps many families become homeowners by reducing the carrying costs of owning a home. According to data from the Internal Revenue Service, the deduction is claimed most often by taxpayers in the 35-45 age group and 65 percent of taxpayers who made less than $100,000. In 2008, more than 1.7 million taxpayers in Illinois claimed a deduction for mortgage interest on their federal taxes at roughly $11,593 for the average taxpayer who had a mortgage.
“The mortgage interest deduction should not be a target in deficit reduction conversations as it would hurt middle-class families right in their pocketbooks,” says Whitehurst. “And this would do nothing to help consumer confidence in housing, which is something we cannot afford to do at this time.”
Download the study “The Economic Impact of Residential Property Sales in Illinois: 2010 Statewide Results” from www.illinoisrealtor.org/marketstats.
Founded in 1978, RCF is an economic and financial consulting firm led by internationally renowned economists with headquarters in Chicago.
The Illinois Association of REALTORS® is a voluntary trade association whose 46,000 members are engaged in all facets of the real estate industry. In addition to serving the professional needs of its members, the Illinois Association of REALTORS® works to protect the rights of private property owners in the state by recommending and promoting legislation that safeguards and advances the interest of real property ownership.
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