Housing Gains Uncertain in 2014

Dec 26, 2013

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The housing market made strong gains in 2013, but there's a lot of uncertainty about what might happen in 2014.  

Housing prices in Connecticut rose ten percent in 2013, the strongest year since the financial crash, giving an improvement of $25,000 on the median price of a single family home. 

According to economist Don Klepper Smith of Datacore Partners in New Haven, even if you're not planning to buy or sell a house, the rising price of your home is important because of something called the wealth effect. "For every dollar you earn in the value of your home," he said, "you spend seven cents in the near term economy. So housing has to be an important ingredient of any economic recovery, and we're finally starting to see some improvement there."

But Klepper Smith cautioned that the housing market, particularly in Connecticut, is hyper local. For instance, Fairfield saw gains of 15 percent, while the market in New Haven is down. He said these types of fluctuations are intimately linked to the employment situation -- how easy it's becoming for people to get or switch jobs. "You really can't get traction in the local housing market," he said, "without getting traction in the local labor market."

In addition to the job market, consumer confidence is also an important predictor, and it's here that Klepper Smith sees the most cause for concern for 2014 in recent surveys. "When we talk about the expectations over the next year," he said, "twice as many respondents now see the economy deteriorating over the next year, relative to those that see improvement. So that's sort of like a red flag that maybe some of our optimism needs to be tempered over the near term."

That sense of uncertainty, combined with only incremental increases in disposable income means housing price rises may moderate at least a bit next year. Klepper Smith said he's looking for gains in the four to six percent range.