Posted on 12/10/2013 1:58:54 PM PST by 2ndDivisionVet
The Affordable Care Act (ACA), otherwise known as “Obamacare”, was created to give millions of uninsured Americans access to health care. But in their zeal to pass historic legislation, the designers and proponents of the law failed to consider the possible negative economic ramifications of the devilish details within the ACA, particularly as it may affect the real estate market.
Within the last 12 years, we have already witnessed the strength that housing has upon the American economy. It is no coincidence that during the period from 2001 to 2006, both the real estate market and the general economy were flourishing, with construction and other housing related jobs creating stronger GDP and an unemployment rate in 2005 below 5%. But as the accompanying chart shows, when the housing market sank after 2006, GDP growth sank along with it.
It is also true that the economy and the housing market have a “chicken and egg relationship” in that either one can influence the other. Therefore, anything that threatens to slow down the economy can also bring a screeching halt to the real estate market and the housing-related stocks that are directly tied to it.
Obamacare has already produced a noticeable and fearful effect among Corporate America, and it could produce another slow down or perhaps even a recession. Another recession would trigger a new wave of foreclosures, adding cheap new inventory to the real estate market, and once more depleting home values.
So what exactly is the problem with Obamacare, and why should a well-intentioned law be so negative for both the general economy and the real estate industry?
There are several reasons that Obamacare could mean trouble for the housing industry: • Work hour reductions: One of the requirements of the ACA was that businesses with 50 or more employees who work more than 30 hours a week must provide their staff with health insurance. But rather than helping more workers to obtain health care, this rule has instead prompted many companies to cut workers’ hours below 30. Additionally, many companies are suddenly discovering that having only 49 employees on staff works very well for them. The companies say that without these measures, they would have to lay off more people just to stay in business. Cutting hours and positions leads to lower salaries and higher levels of unemployment or underemployment. Unemployed and part time workers have a very difficult time qualifying for a mortgage.
• Rising costs of healthcare: Millions of consumers have already lost their health insurance because of Obamacare and now have sticker shock when they try to gain new coverage through the ACA website. Media stories abound of individuals’ health care costs doubling or tripling from previous levels. If U.S. consumer begins to pay out hundreds of dollars more per month for their health insurance, it severely impacts the ability to save for down payments and loan closing costs. It’s also money they won’t have to spend in their local economies, and that could very well snowball into more layoffs and business closings.
• Higher deductibles: Along with higher premiums, consumers are finding that under ACA, annual deductibles are multiplying by four or five times what they had under previous policies. The least expensive “bronze” plan has deductibles of $5,000 or more. So even those who are getting government subsidies to pay part or all of their premiums may still have to shell out thousands of dollars more for health care. One trip to the ER, or even a difficult pregnancy could wipe out a year’s worth of savings for a down payment or closing costs. Those who default on paying their medical bills could see their credit scores fall below the levels necessary to secure a mortgage for quite a while.
• Older workers can’t retire: If workers in the 55 to 64 age group — who are not yet Medicare eligible — cannot afford to retire due to higher premiums and deductibles under Obamacare, then the 26 to 40 age group — which comprises the largest demographic of first-time home buyers — cannot move up the ladder or be hired from outside the company to fill those better-paying positions.
• Low salary service industry jobs: Despite the October jobs report showing 204,000 new jobs created, many of those were either part-time or low-salaried service industry jobs, as higher health care premiums continue to deter companies from hiring more workers. 16% of all the jobs created in the last year were restaurant, fast food, and hotel jobs that have average salaries of less than $12 per hour. People who live on these salaries cannot afford to buy a home in many areas of the U.S., and usually have poorer credit scores and higher debt-to-income ratios than those with higher salaries.
The bottom Line
If first-time home buyers, who comprise 37% of all real estate sales, are forced to delay their purchases, the impact upon the housing market and the general economy will be huge. New home sales will be hit the hardest, as they are more expensive than re-sales or foreclosures, and are rarely purchased by investors.
As I recently pointed out, homebuilder stocks such as Lennar (LEN), KB Home (KBH), and D.R. Horton (DHI) underperformed the S&P 500 over the second half of 2013. Given the increasing economic difficulties that consumers will face under Obamacare, I would expect the same mediocre performance or worse to occur in 2014, and I would therefore suggest avoiding homebuilder stocks for now.
Who would have thunk it?
From what I’ve seen, most of the recent housing purchases are as investment for rentals. My daughter’s home was one like that, Indiana property bought by a California hedge fund.
Ben & Janet fake money chasing hard assets.
So I don’t see Obamacare making much difference.
That’s okay.. The U.S. government and FOREIGN INVESTORS are snapping up homes, condos and housing developments at a blinding pace.
Some of my friends are now paying more for their insurance than I ever paid on a mortgage. How will this affect car purchases or other big ticket items? Heck, how will it affect dining out or grocery shopping?
(I’m not participating in insurance. I’ll go to the doc-ina-box and pay cash. I can get a lot of care for the cost of the out-of-pocket my friends are paying.)
I have a son moving back in this month,30 hours doesn’t cut it. I expect that is happening to a lot of families.
#1 determinant of real estate growth: “good” paying job growth.
So, if that’s true, Obamacare will be bad for real estate.
Obamacare will have the predicted negative impact on the U.S. economy and it’s cost will be the main reason. Housing starts and home sales will be one of the first sectors to reflect the economic impact of the Unaffordable Care Act. By 2016, Obama will be hated by millions but Obamacare may still be in force because he will never agree to repeal it, only tinker around the edges. This is the left’s Trojan Horse and they are not about to abandon it. Until we have a Republican majority in both houses of congress and a conservative president, ObamaCare will remain a cancer on America.
With increases for healthcare ins. putting it in the range of someone’s house payment as I have heard who would buy a house now if they knew the facts. Since obozocare is mandated by law it may cause foreclosures and since Medicare and Medicare Advantage have been gutted seniors will have to pay more starting next year this could also result in seniors giving up their homes. Class can you say flooded market. Hours cut by cos. in self defense and not hiring 50 are just iceing on the cake for the Democoms.
I would wait before buying any major purchase till things shake out. Obozocare is working just as planned.
In WA State, over 90% of the Obamacare sign ups have been assigned to Medicaid. In WA Medicaid is asset tested and recipients are allowed to own a home worth not more than $500,000. The catch is that a lien will be placed against the home for the amount of the Medicaid payments.
So in WA, residents are mortgaging their homes to pay for Obamacare.
“Older workers can’t retire: If workers in the 55 to 64 age group — who are not yet Medicare eligible — cannot afford to retire due to higher premiums and deductibles under Obamacare, then the 26 to 40 age group — which comprises the largest demographic of first-time home buyers — cannot move up the ladder or be hired from outside the company to fill those better-paying positions.”
That’d be me. Whippernappers ain’t gettin’ MY job until I’m done with it, or dead. ;)
MUSLIM and SAUDI investors to bring Islam to the West. Its in the game plan.
How many times must we all state the obvious?:
Janet Yellen will need to accellerate propping up housing and the rest of the economy, to make Obama and his healthcare regulations look effective...
...which will make the collapse far worse than anyone can predict.
The question is when. That can’t be predicted either, because we are in uncharted waters.
> I have a son moving back in this month,30 hours doesn’t cut it. I expect that is happening to a lot of families.
Same here and I really can’t afford to feed him but Zi don’t eant him living out on the streets either. He’s not a bum either; he’s a good, repectful, hardworker who’s fallen victim to Obamacare. Just got off the phone with a buddy of mine who’s protected many powerful people incluing Bush Sr and many other famous people and even he’s going through hard times. This president is completely destroying the economy despite the cheery faced lies spouted by the MSM.
Don’t forget the ObammyCare 3.8% surtax on capital gains AND rental income!
How? There are hardly any loan originators left after they made it so dangerous, difficult and onerous to be one. They’ve all gone back to selling cars, appliances and term life insurance.
They won’t even be able to purchase ObamaFlowers. (This is an excellent analogy of OCare
Pass it on — I got it in an email.
: Obama Flowers - Have you ordered yours yet?
(Receptionist) Hello, Welcome to ObamaFlowers, My name is Trina. How can I help you?
(Customer) Hello, I received an email from Professional Flowers stating that my flower order has been canceled and I should go to your exchange to reorder it. I tried your website, but it seems like it is not working. So I am calling the 800 number.
(Receptionist) Yes, I am sorry about the website. It should be fixed by the end of November – or maybe December. But I can help you.
(Customer) Thanks, I ordered a “Spring Bouquet” for our anniversary, and wanted it delivered to my wife.
(Receptionist Interrupting) Sir, “Spring Bouquets” do not meet our minimum standards, I will be happy to provide you with Red Roses.
(Customer) But I have always ordered “Spring Bouquets”, done it for years, my wife likes them.
(Receptionist) Roses are better, sir. I am sure your wife will love them.
(Customer) Well, how much are they?
(Receptionist) It depends sir, do you want our Bronze, Silver, Gold or Platinum package.
(Customer) What’s the difference?
(Receptionist) 6, 12,18 or 24 Red Roses.
(Customer) The Silver package may be okay, how much is it?
(Receptionist) It depends sir, what is you monthly income?
(Customer) What does that have to do with anything?
(Receptionist) I need that to determine your government flower subsidy, then I can determine how much your out of pocket cost will be. But if your income is below our minimums for a subsidy, then I can refer you to our FlowerAid department.
(Customer) FlowerAid?
(Receptionist) Yes, Flowers are a Right, everyone has a right to flowers. So, if you can’t afford them, then the government will supply them free of charge.
(Customer) Who said they were a Right?
(Receptionist) Congress passed it, the President signed it and the Supreme Court found it Constitutional.
(Customer) Whoa.....I don’t remember seeing anything in the Constitution regarding Flowers as a Right.
(Receptionist) It is not really a Right in the Constitution, but ObamaFlowers is Constitutional because the Supreme Court Ruled it a “Tax”. Taxes are Constitutional. But we feel it is a Right.
(Customer) I don’t believe this...
(Receptionist) It’s the law of the land sir. Now, we anticipated most people would go for the Silver Package, so what is you monthly income sir?
(Customer) Forget it, I think I will forgo the flowers this year.
(Receptionist) In that case sir, I will still need your monthly income.
(Customer) Why?
(Receptionist) To determine what your ‘non-participation’ cost would be.
(Customer) WHAT? Your can’t charge me for NOT buying flowers!
(Receptionist) It’s the law of the land, sir, approved by the Supreme Court. It’s $9.50 or 1% of your monthly income.....
(Customer)interrupting) This is ridiculous, I’ll pay the $9.50..
(Receptionist) Sir, it is the $9.50 or 1% of your monthly income, whichever is greater.
(Customer) ARE YOU KIDDING ME? What a ripoff!!
(Receptionist) Actually sir, it is a good deal. Next year it will be 2%.
(Customer) Look, I’m going to call my Congressman to find out what’s going on here. This is ridiculous. I’m not going to pay it.
(Receptionist) Sorry to hear that sir, that’s why I had the NSA track this call and obtain the make and model of the cell phone your are using.
(Customer) Why does the NSA need to know what kind of CELL PHONE I AM USING?
(Receptionist) So they get your GPS coordinates sir
(Door Bell rings followed immediately by a loud knock on the door)
(Receptionist) That would be the IRS sir. Thanks for calling ObamaFlowers, have a nice day...and God Bless America.
The market is always there despite governments belief that its distortions are effective.
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