ECONOMY: WHAT’S BEHIND THE HOUSING RECOVERY
Edward H. Boss Jr., Chief Economist

There can be little doubt that the housing sector has been improving following its unprecedented historic decline during the past recession. Now four years after the recovery began, monthly housing-related reports are on an unmistakable upward trend. Perhaps the most striking sign of housing improvement has been rise in their prices.

On the supply side, U.S. seasonally adjusted housing starts in April fell 16.5% from March although up 13.1% from a year earlier. Most of the decline last month and earlier increases were in multifamily units. Single-family units were down 2.1% in April. At the same time, single-family building permits, a precursor to new starts, were 36.1% higher in April than a year earlier. The substantially stronger rise in permits than starts suggests the desire for a supply increase. Surprisingly, with one in five homeowners underwater  on their mortgage and home prices rising, the longer they hold on to their property, with asset prices rising, the closer they will come to full price recovery. Thus, instead of adding to supply, the rise in home prices actually acted to limit the market supply.

Even while home supplies have been restrained, demand for residential real estate has been vigorous. This in large part can be explained by the Federal Reserve’s continued pursuit of quantitative easing which has kept interest rates, including mortgage rates, at historically low levels, making the prospect of investment in housing often a better vehicle than available on other long-term alternatives. In addition there has been a large increase in foreign purchases of U.S. real estate as wealthy individuals abroad find a stable U.S. economic environment an attractive place in which to diversify their investment holdings. At the same time, there are wide regional differences in the extent of the housing recovery. In Illinois for example, the improvement in residential housing, like many economic measures including the employment situation, has failed to keep pace with either regional or national trends.

REVENUE: AS EXPECTED – MAY RECEIPTS GIVE BACK SOME GAINS
Jim Muschinske, Revenue Manager

After a record month of April, revenues gave back some of the gains, falling $336 million in May. The decline in receipts was anticipated with a drop in income taxes as well as federal sources not surprising. Although most of the “April Surprise” was due to taxpayer’s efforts to minimize the tax consequences of the higher 2013 federal tax rates, it was believed that some of the phenomenal growth in income taxes was due in part to accelerated receipting that had the effect of pulling some of May receipts into April. [See Commission’s April briefing for more discussion]. As a result, a comparatively weaker May for income taxes is not alarming. Neither is a considerable falloff in federal sources that took place this month as those revenues were also down. A combination of a high month for federal sources last May in combination with a slowing of reimbursable spending this year resulted in the falloff.