When a family or individual purchases a home, there are direct and indirect ripple effects in the state and local economies. With any home purchase, there is more to the buyer’s and seller’s expenditures than the mortgage payment and closing costs. There are fix-up costs and replacement of household items, moving expenses and the purchase of new furniture just to name a few. None of these expenditures would take place if it were not for the sale and purchase of a home.
The Illinois Association of REALTORS® wanted to look closely at this—just how much is spent by the seller and the buyer in the average Illinois home sale? Using Advocacy Program funds, IAR commissioned a study to examine the expenses that buyers and sellers incurred in conjunction with the purchase of an average priced home in Illinois in 2010. The study further reviews the direct and indirect economic results of these expenditures made by a seller and a buyer in a single residential transaction.
An example of a direct and an indirect expenditure would be as follows. When homebuyers purchase a home, they typically buy new furniture. There is a direct expenditure in the form of a payment to the store. Then there are indirect ripple effects. The furniture store will have expenditures of its own in terms of labor, delivery, construction, etc. as a result of the furniture purchase. Again, none of these expenditures (examined in this study) would be occurring if the residential purchase did not take place.
IAR commissioned the Chicago-based firm RCF Economic and Financial Consulting Inc. for this study, which uses transactions that are processed through multiple listing services as reported to IAR. From the one-year period 4Q09 to 3Q10, there were 111,319 residential attached and detached single family properties transacted in Illinois, which is the universe of this study. The statewide average price of a home was $208,293. (These are existing homes only.)
The total of the direct expenditures is $28,581 per home sale. When you multiply that number by 111,319 (which is the total number or residential sales in the state during 2010) the sum over all industries gives Illinois total direct expenditures of $3.2 billion.
The study “The Economic Impact of Residential Property Sales in Illinois: 2010 Statewide Results,” available for download from www.illinoisrealtor.org/marketstats, explains how indirect expenditures account for another $4.7 billion contribution to the Illinois economy. The total contribution is $7.9 billion.