Clear Capital: Fiscal Cliff to Throw a Wrench in Home Price Recovery?

“Fiscal cliff” uncertainty poses the largest current threat to the housing industry according, despite a recent uptick in home prices, says Clear Capital in its most recent report on the housing market.

Pending Congressional action before January 1, the United States stands to “fall off” that fiscal cliff, resulting in the return of higher taxes and less funding for government programs that Americans have long enjoyed.

As buyers stand on the sidelines due to economic uncertainty, their confidence has been diminished, reports Clear Capital in its October Home Data Index Market Report.

Last year’s debt ceiling debate showed just how close lawmakers are prepared to come to deadlines before attaining an agreement, says Clear Capital. In 2011, consumers reacted negatively to the high level of uncertainty, resulting in a 14.3 percent drop in the confidence in the economy.

Although annual home price declines continued through 2011, the market finally received a break early this year with an improvement in consumer sentiment. According to Clear Capital’s report, national yearly home prices pulled through with a growth of 3.6 percent in September.

Despite the growth, however, bigger issues could be lingering on the horizon.

“While housing continued to make progress in September, we’ve turned our focus to the impending fiscal cliff,” said Dr. Alex Villacorta, Director of Research and Analytics at Clear Capital. “With forecasted gains of 2.2 percent over the next six months, the threat of the fiscal cliff could throw a wrench into the recovery.”

In the short term, more markets appear to be improving than declining, Clear Capital says. The recovery in the housing industry continued to evolve in September with gains across the board at the national and regional levels. The West reported quarterly home price gains of 3.7 percent, while the Midwest showed 1.9 percent. The South increased 1.3 percent and Northeast 0.2 percent.

For specific metro areas, Phoenix stood firm in September as the strongest region with 27.7 percent yearly growth, with Las Vegas right around the corner. The forecast shows Las Vegas with yearly home price gains of 8 percent and additional growth of 9.5 percent over the next six months.

The data aligns with other recent housing reports, which have noted a bottom in the market has been reached. The Case-Shiller/S&P Home Price Index showed an increase in July for the third consecutive month, rising 1.5% over June.

As soon as businesses and consumers are reassured, Dr. Villacorta said, the more likely they will build, purchase, or loan on a house.

“Confidence is key to turning the recovery’s near term sprint into a marathon,” he said.

Written by Holly Hoechstenbach

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