The Fiscal Cliff and the Housing Economy

by 15 Nov 2012

The fiscal cliff and the housing sector were two major aspects of economic recovery that were conspicuously absent from the recent campaign trail. Now that the incumbent President Barack Obama has been reelected to another term, there are serious concerns about the potential impact of the fiscal cliff, the automatic expiration of tax breaks and reinstatement of spending measures eliminated during the George W. Bush era. Unexpectedly, the burgeoning housing recovery may prove to be an antidote to the fiscal cliff. 

The tax breaks and spending cuts of the fiscal cliff were considered a good idea when they were enacted, but they eventually became a headache when the housing economy crashed and caused the collapse of major financial institutions. The United States economy has been operating with a deep budget deficit as a result. The end of the tax breaks, under normal circumstances, would mean good news due to increased revenue. The reality, however, is that the fiscal cliff would have a negative effect on the economy at this time. 

Housing Recovery to the Rescue

The best hope for the American economy at this point is to not worry about the fiscal cliff one way or another. The only bright sector of the U.S. economy could obliterate any effect of the fiscal cliff, and that is housing. The key ingredient in housing as an antidote to the effects of the fiscal cliff is confidence, and analysts are seeing plenty of it.

The U.S. economy, by many measures, should be filling the same pangs as the member nations of the European Union. Those economies don't have a recovering housing market like the U.S., and thus their future is even more uncertain. Even other major aspects of the U.S. economy, like employment and consumer spending, are wholly reliant on the housing recovery. 

The American housing market is expected to continue its gradual recovery. The real estate, mortgage and home building industries are already enjoying the fruits of regional improvement. All this will lead to increased confidence that may trump the fiscal cliff, but avoiding the cliff for the time being will be the most sensible measure to make sure that economic confidence keeps growing.


Should CFPB have more supervision over credit agencies?