Real Estate Outlook: The Fiscal Cliff
By Broderick Perkins
December 10, 2012
The strongest housing market since the
peak of the housing boom is expected to pick up steam, but the so-called
“fiscal cliff” could cause problems.
Fiserv Case-Shiller’s Home Price Index
projects home prices nationwide will increase by an average of only 0.3 percent
from the second quarter in 2012 to the second quarter of 2013.
However, by the second quarter of 2017,
home prices will be moving up at an annualized rate of 3.3 percent. Home prices
in 37 of the 384 metro areas are projected to increase at more than twice the
nationwide annualized rate of 3.3 percent over the next five years. More than
half these markets are in three states: California, Florida and Oregon.
The lackluster 0.3 percent home price
growth is based on Congress failing to prevent the nation from falling off a
fiscal cliff. The so-called fiscal cliff is a reference to recession-like
economic conditions expected without the extension of tax cuts and
Congressional action on other economic stimuli.
If Congress can’t come to an agreement,
households stand to pay, on average, an additional $2,200 a year in extra
taxes. Taxpayers will feel the squeeze in their first 2013 paycheck. With more
money going to taxes, Americans will have less money to spend on housing and
that could stall the housing recovery.
Meanwhile, Fiserv’s analysis of home
price trends in more than 380 markets found that the average home price rose
1.2 percent for the year ending in the second quarter 2012. That increase
marked the first year-over-year increase in home prices nationwide since 2006,
excluding 2010. The 2010 market enjoyed the benefits of the federal home
buyer’s, tax credit.
Prices were up in the majority of the
metro areas tracked. Leading the way were home prices in Phoenix, Arizona, up
14.5 percent; Detroit, Michigan, up 11.6 percent; San Jose, California, up 9
percent and Miami, Florida, where prices rose 6.9 percent.
Even if the nation avoids falling off a
fiscal cliff, Fiserv expects a small “hiccup” to slow the housing
recovery. David Stiff, Fiserv’s chief economist said, “In some markets, investor
demand for housing will start to fade before first-time and trade-up buyer
demand has ramped up enough to take its place. This will be most evident in
markets with large foreclosure inventories.”
“In some markets, investor demand
for housing will start to fade before first-time and trade-up buyer demand has
ramped up enough to take its place. This will be most evident in markets with
large foreclosure inventories,” Stiff also said.
Fiserv also reported, of the 29 markets
where home prices remain more than 50 percent below peak prices, 15 are in
California and 11 in Florida.
However, over the next five years, home
prices in 24 of these 29 markets should increase at higher rate than the
projected annualized rate for the nation as a whole.