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Clear Capital: ‘Fiscal Cliff’ Could Send Prices Tumbling

Recent gains in housing are closely linked to rising consumer confidence, according to numbers juxtaposed and analyzed by ""Clear Capital"":http://www.clearcapital.com in its latest report on home price movements. The feeble underpinnings of price increases, however, could soon topple, according to the real estate valuation company.

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Threatening to temper consumer sentiment--and in turn, home prices--is the fear Congress will not act in time to avert the looming ""fiscal cliff"" that lies in wait at year-end, Clear Capital warns. ""Fiscal cliff"" is the moniker that's been given to the $500 billion in expiring tax breaks and new government spending cuts scheduled to take effect at midnight on December 31, 2012, and the Congressional Budget Office warns it could send a shock through the financial system so deep that we might find ourselves in another recession.

Even if federal lawmakers do agree on a resolution to mitigate the impact of impending debt-trimming measures, Dr. Alex Villacorta, Clear Capital's director of research and analytics, says consumer confidence is still at risk if Congress fails to act quickly and allows economic uncertainty to escalate with each day the end-of-year deadline draws closer. This government-induced falling consumer sentiment will keep homebuyers on the sidelines, Villacorta warns, and ""throw a wrench into the recovery.""

Villacorta says housing is making notable progress, with enough momentum to carry improvements well into the new year, _if_ Congress doesn't put a damper on confidence.

Home prices continued to gain ground in September with national numbers closing out the third quarter 3.6 percent higher than the previous year, Clear Capital reported Tuesday. Improvements have been so strong, in fact, the real estate valuation firm says yearly growth is forecast to shake off winter's chill and continue through the first quarter of 2013.

The company projects a 2.2 percent gain nationally through the first quarter of next year with home prices defying the typical seasonal trajectory that follows the thermometer's mercury lower--that's provided Congress grinds out a fix to avoid the cliff before the curtain falls on 2012 and does so in a fashion that does minimal damage to consumer confidence.

""Confidence is key to turning the [housing] recovery's near-term sprint into a marathon,"" Villacorta said. ""The sooner businesses and consumers are reassured, the more likely they are to build, purchase, or loan on a house.""

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The housing recovery now lies in Congress' hands, Clear Capital says. The company draws parallels between recent bouts of economic uncertainty and declines in both consumer confidence and home prices in its latest report.

Consumers reacted negatively to the debt ceiling spectacle last summer with a 14.3 percent drop in sentiment--the largest since the end of the recession--and concurrently, home prices experienced their worst annual declines since the bottom of the market in 2009, Clear Capital reports.

The company also points to May 2011, when the debt ceiling debate really began to intensify and consequently, when home prices dropped 6.8 percent year-over-year. Annual home price declines persisted through 2011, until finally finding some relief in early 2012, coinciding with recorded improvements in consumer sentiment.

Clear Capital's data indicates strength in consumer sentiment also corresponded with the only two notable housing improvements since 2009. The company says between March 2009 and June 2010, consumer sentiment rebounded 32.6 percent. Over the same period, home prices went from seeing yearly declines of 22.7 percent to yearly growth of 4.0 percent. Similarly, between December 2011 and September 2012, consumer sentiment gained 12.0 percent, and home prices moved from yearly losses of 2.3 percent to gains of 3.6 percent by Clear Capital's assessment.

Now, the valuation company says, economic and housing improvements are priming pent up homebuyer demand for a breakout. Consumer sentiment has finally rebounded from the debt ceiling debate lows of last year, up 31.8 percent, and homebuilders are echoing consumers, with confidence at a five-year high.

Recovery continued to take hold in September at the regional level as well. Clear Capital says the West once again dominated the high-end of its index with 9.4 percent in annual gains--the highest yearly gain the region has recorded since the second quarter in 2006. Projected gains of 5.3 percent over the next six months in the West are expected to drive a sustained recovery at the national level through the winter months.

The South and Midwest saw yearly gains in September of 3.2 percent and 1.5 percent, respectively. Clear Capital expects the South to see further price advances of 1.9 percent through March 2013 and the Midwest to post a 0.8 percent rise in home prices.

The Northeast continues to see annual gains soften, with prices in September rising just 0.9 percent over the previous year. Home prices in the Northeast are expected to do more of the same and remain relatively flat, growing 0.9 percent over the next six months, according to Clear Capital's forecast.

The good news, Clear Capital says, is that far more markets are improving than are declining. The company's forecast shows the recovery will sustain the typically slow winter, and start the spring buying season strong.

But as we approach the end of 2012, will fear from the impending fiscal cliff sway consumer confidence and discourage potential homebuyers?

""We say yes, it can,"" Clear Capital stated. ""Congress must make tough decisions before the 11th hour.""

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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