John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who provides unique insight to appraisal issues of the day. Here is his weekly post called Solid Masonry. This week, appraiser John Mason ponders the housing market strengths and weaknesses in Technicolor. Jonathan Miller

I was thinking about the various factors that drive the housing market and wondered how these might compare to a year ago. So I formed a partial list of some likely factors to impact home prices, along with my assessment of how they compare to a year ago. This is by no means all inclusive, as there are too many factors to consider them all. I also didn’t put them in any particular order, as their priority varies from one time period to another. As an example, in a strong market would-be-buyers are less deterred by rising mortgage rates than would be true in a stagnant or declining market. All that (disclaimer stuff) being said, here is the list, along with my assessments:

Red = Less Favorable Black = Neutral Green = More Favorable

  • Mortgage Rates We don’t really need a link for this one. For those who have been in a coma, mortgage rates are up, still rising and expected to rise some more.
  • Employment & Wages While private job sector growth is back in the black with recent gains now exceeding losses and unemployment has sunk below 5%, “real wages” have remained relatively flat during the past ten years.
  • Taxes Despite the magical theatrics of giving with one hand and taking with the other, the fact remains the average American is paying more (in dollars and percentage of income) in total taxes. Many of the tax reforms at the national level result in expenses being passed down to the state and local governments, which is why property tax increases are running as high as two to three times the rate of inflation. But to be sure, there are many other factors contributing to rising taxes, including increasing energy costs, the nation being at war, the ever expanding government (no matter who is in power), increased deficit spending.
  • Inflation Inflation has clearly been threatening, but the Federal Reserve’s aggressive tactics have kept it in check and it still remains historically modest.
  • Affordability (Home Prices vs. Wages) Mortgage rates have increased, but they remain historically modest or low (depending on how old you are). While there are many links debating the “affordability” issue, the fact remains that more first-time buyers are financing larger percentages of the purchase price while allocating increasing portions of their monthly income to housing [pdf]. If you think they aren’t over-stretched, ask yourself this question, could you afford to buy your home today?
  • Energy Costs There is no doubt about which way energy prices have gone, with all energy users paying exceedingly more in each of the past three years. To add insult to injury, oil and gas futures shows no signs of abating. High energy prices are like an unavoidable tax and sooner or later these costs can no longer be “absorbed” and must be passed on.
  • Construction Costs Here we see some of the rising costs builders are faced with. (Please forgive me, as I did include this link in one of my posts from a couple weeks ago.)
  • Tax Laws Just a few months ago there was serious talk of capping home owner’s mortgage interest and property tax deductions, along with some reasonable arguments to support the move. Lately it seems Washington has been too preoccupied to even remember they spoke of such reform and I could not find current links regarding the matter. Keep your eye on this one though, for many believe the Tax Reform Act of 1986 had devastating consequences on the real estate market.

No doubt there can be a significant lag between these factors and how they impact the housing market, but most of these trends are well over a year old. Considering how many of these factors have trended unfavorably (red), the housing market is more resilient than some might expect. So if anyone is keeping score, the “home” team is hanging in there.

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