However, even though the housing market seems to be on the path to recovery, sales activity and price appreciation are expected to stall in the near term as a result of the so-called “fiscal cliff.” This refers to the potentially severe economic impact of several items that require Congressional action, including the Bush and Obama income tax cuts that are scheduled to expire at the end of the year, the automatic budget cuts enacted as part of the compromise over increasing the debt ceiling and the conclusion of the two-year payroll tax holiday. Fiserv Case-Shiller projects the slowdown in the economy will restrain housing demand enough so that next year’s spring/summer market will likely be weaker than this year’s.“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 added. “Currently, investors are snapping up foreclosed properties almost as quickly as they are being listed for sale, but the pool of investors is limited and, as prices rise, the potential returns on residential real estate diminish. Consequently, Fiserv Case-Shiller projects a small, short-term price decline for many markets that recently experienced double-digit appreciation.” These declines, however, will only be a small hiccup before the housing market recovery accelerates during the second half of 2013. Housing affordability has never been better and the Federal Reserve's third round of quantitative easing should keep mortgage interest rates low for at least another two years. Following the 2012 presidential election and the resolution of the fiscal cliff, overall economic growth is also expected to accelerate. As consumer confidence improves and people become convinced that home prices have stabilized, demand from first-time and trade-up buyers will return to normal, ensuring a sustained housing market recovery.
Other highlights from the latest Fiserv Case-Shiller Indexes include:
- 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 (nine), Florida (five) and Oregon (five). Conversely, only 12 markets are forecast to grow at less than half the nationwide annualized rate of 3.3 percent in the same period.
- Of the 29 markets where home prices are still more than 50 percent below their peaks, 15 are in California and 11 in Florida. There is hope, though, for most homeowners in these markets: over the next five years, home prices in 24 of these 29 markets are projected to increase at higher than the projected annualized rate for the country as a whole.
- The short-term outlook is not very bright for many residents of the Sunshine State: eight of the 11 markets forecast to experience further price declines in each of the next two years are in Florida.
|Metro Area||Population||Change in||Change in||Forecast Change|
|(2011)||Home Prices||Home Prices||in Home Prices|
|to 2012:Q2)||to 2012:Q2)||to 2013:Q2)|
|Fort Worth, TX||2,180,758||-3.8%||1.0%||-0.3%|
|Kansas City, MO||2,052,676||-8.6%||-1.9%||-1.5%|
|New Orleans, LA||1,191,089||-4.1%||1.9%||-0.8%|
|Salt Lake City, UT||1,145,905||-11.5%||1.0%||3.7%|
|San Antonio, TX||2,194,927||-0.8%||1.7%||0.6%|
|San Jose, CA||1,865,450||20.8%||9.0%||-5.9%|
|St. Louis, MO||2,842,155||-6.4%||4.6%||-2.7%|
- Fiserv Case-Shiller - www.caseshiller.fiserv.com
- Federal Housing Finance Agency (FHFA) - http://www.fhfa.gov/