September's national index of home prices shows a 3 percent improvement from a year ago, nudging forward hopes for a sustained housing recovery. Of the 20 cities measured in the Standard & Poor's Case Shiller index, 18 saw home prices rise over the past year. In just one month, from August to September, prices rose in 13 cities.
Phoenix showed the most improvement from a year ago, up 20.4 percent. The only two cities where prices failed to rise are New York, down 2.3 percent, and Chicago, down 1.5 percent.
"All the signs point toward a continued housing recovery," says Rick Sharga, executive vice president of Carrington Mortgage Holdings in Santa Ana, Calif. "Pending sales are up, existing sales are up, along with housing starts, and home prices are down."
But all that data doesn't mean the recovery will be robust, Sharga adds. "The truth of the matter is that we're one bad economic event away from falling apart again." Chief among the concerns that could bring it all down is if we go off the so-called fiscal cliff, which Sharga says would be "devastating" to the housing market.
He cites three major concerns for the housing market among the possibilities being discussed by Congress.
- Elimination of the mortgage tax deduction, which could make it more difficult for some homeowners to afford their mortgage. Sharga believes that the final tax reform policies will still contain a mortgage deduction, but perhaps with a lower cap.
- Elimination of the mortgage debt forgiveness exemption. This is a far greater concern than the mortgage deduction, Sharga says. Since 2007, households have been able to exempt up to $2 million for mortgage principal reductions and bank aid. The exemption is set to expire at the end of the year, and Sharga says that if that happens, "We'll see short sales wither up and die. And that will really devastate the market because every short sale is a foreclosure avoided."
- The proposed tax on couples earning $250,000 or more and individuals earning $200,000 or more. "That could move a whole segment of potential buyers out of the market," Sharga says. In states such as California where it's expensive to buy a home, buyers may have trouble coming up with a down payment. "I hope saner heads prevail (in Congress), and they realize that $200,000 in California is not the same is it is in Des Moines (Iowa) in terms of spending power and cost of living."
Sharga believes Congress will come up with a short-term patch to avoid the fiscal cliff while they develop a longer-term plan. That action alone would keep the housing market on its upward trajectory, an important step toward rebuilding the economy. "I hope we've learned our lessons from the past," he says, adding that "One of the fastest ways to get the economy growing is to stimulate housing."
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