How will the US property market react to reduced fiscal stimulus?
The Federal Reserve has this week confirmed that the enormous fiscal stimulus program in America will be tailed off in the short to medium term. The authorities have confirmed that monthly bond purchases would be reduced from $85 billion-$75 billion per month from January 2014. This has been a source of relatively cheap financing in the US although a recent strengthening of the economy and positive news from the employment market left the US Federal Reserve with little real choice but to reduce the ongoing fiscal stimulus.
There are obvious concerns around the world as to how this will impact the worldwide economy as well as the worldwide property market. However, if we look closer to home, how will a reduction in the US fiscal stimulus program impact the US property market?
US property market
In many ways it is difficult to look at the overall US property market under one umbrella because there are so many different markets which are very often impacted by different variables and going in different directions. If we take a look at the general US property market there is no doubt that it has performed better than many experts expected at the beginning of 2013. During this period we have had difficulties with regard to the US budget deficit, a number of false dawns with regards to economic recovery although through this all the property sector has remained fairly strong.
Quote from PropertyForum.com : “Renting a property may be a shorter-term commitment than taking out a mortgage and purchasing a home, but you should still make sure how much rent you can afford before shopping for a place to live.”
While there are obvious concerns that the reduction in fiscal stimulus will impact the flow of cheap finance and ultimately impact the property market, this will not necessarily be the case.
A strengthening economy picks up the slack
The perfect scenario would be as the US authorities reduce the enormous fiscal stimulus program that the economy recovers and picks up the slack. This is a big ask for an economy which has been struggling, against a worldwide economic background which is mixed and an international trading environment which now has so many new players. However, the general consensus is that the US authorities have held off as long as they could, that the economy is moving forward and very positive signs from the employment market bode well for the future.
The truth is that nobody really knows how the economy will perform with a reduced fiscal stimulus program, nobody really knows how the property market will react although initial signs from worldwide stock markets have been positive.
Conclusion
The US economy is still the heartbeat of the worldwide economy and a reduction in the fiscal stimulus program had to happen at some point. There were initial concerns that stock markets would take this badly although just 24 hours after the announcement all seems well on the international investment front. There have been very positive signs about the US economy, there have been very positive signs about US unemployment and a perfect scenario would be an ongoing improvement in the economy as the fiscal stimulus program is tapered off.
It will be interesting to see how investors react in the short to medium term although at this point in time there are no major concerns about how this will impact the US property market.