Not a Real Housing Recovery Until Fiscal Cliff is Past
NEW YORK (TheStreet) -- Home sales are up, and that's good news for the housing market and economy.
But if the U.S. economy falls over the so-called "fiscal cliff" Jan. 1, as taxes go up and government spending automatically goes down, the housing market may get dragged down, an industry expert says.
First, the good news. According to the National Association of Realtors, home sales across the U.S were up 5.9% in November - the highest level since November 2009.
For real estate right now, it's all about demand, the association says.
"Momentum continues to build in the housing market from growing jobs and a bursting out of household formation," says Lawrence Yun, its chief economist. "With lower rental vacancy rates and rising rents, combined with still historically favorable affordability conditions, more people are buying homes. Areas impacted by Hurricane Sandy show storm-related disruptions, but overall activity in the Northeast is up, offset by gains in unaffected areas."
Could that demand be curtailed by the fiscal cliff?
Cliff Rossi, a teaching fellow at the University of Maryland says the housing market must survive the fiscal cliff before it can fully recover.
"Looking into 2013, the 'fiscal cliff,' regulatory reform and other factors could put a drag on housing markets through the year," Rossi says. "It may be premature to call this a real recovery."
Rossi does expect Congress and President Barack Obama to come to some sort of agreement that would stave off economic cliff diving. "I expect the political brinksmanship to come to a solution that will bring a modicum of stability to financial markets," he says, adding one caveat: Such a deal could include some kind of curb on the mortgage tax deduction, which could hamper housing market growth.
Rossi says there are issues besides the fiscal cliff challenging the housing market in 2013. But continued low interest rates engineered by the Federal Reserve to keep the credit pipeline flowing will keep mortgage rates below 4%, making mortgages more affordable for buyers and fueling an already rising home sales market in which home prices are up 4% from November 2011 to November 2012, he says.