Real Estate Outlook: The Fiscal Cliff

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.


Written by Broderick Perkins
December 10, 2012
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