Obamacare Set to Hit Real Estate Market

Image: Obamacare Set to Hit Real Estate Market

Wednesday, 03 Jul 2013 07:42 AM

By Michael Carr

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The recovery in real estate is set to run up against mandatory spending on health insurance. For now, it appears that Obamacare will win and home price gains are likely to slow from their recent pace.

Even without new mandates that will impact income, price gains in the real estate market have pushed the price of the average home out of reach for the average family.

A healthy real estate market would be one where homes are affordable. The price-to-income ratio can be used to evaluate affordability. From 1967 to 2003, the average home was priced at 3.3 times the median household income. That ratio rose above 4 in 2004, about four years before prices peaked.

Editor's Note: ObamaCare Secrets Revealed

After briefly dipping under 4, the price-to-income ratio is now above that level again. Even the smallest increase in interest rates could price even more families out of the market. Without buyers, the price gains seen recently in the real estate market are unlikely to continue.

To see continued gains in real estate, incomes will need to increase. On a national level, there seems to be little chance of broad-based income gains.

Anecdotally, workers with incomes below the median are seeing hours cut as employers prepare for Obamacare. This will reduce income and push home ownership out of reach for many. Employers have already begun this process, and it seems unlikely to be reversible.

Even though the employer mandate has been delayed, workers with incomes at or above the median are likely to see the costs of their benefits increase, as new insurance rules drives costs up. As employers pay more for benefits, income is likely to stagnate.

Unless income increases, the price of homes will have to fall for the price-to-income ratio to return to normal. The best case appears to be that home prices remain nearly unchanged for several years until incomes recover.

Editor's Note: ObamaCare Secrets Revealed

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