How Obamacare Could Kill the Housing Market in 2014

by Ethan Roberts | December 10, 2013 2:40 pm

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.

U.S. GDP Growth Rate[1]

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:

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[2], homebuilder stocks such as Lennar (LEN[3]), KB Home (KBH[4]), and D.R. Horton (DHI[5]) 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.

As of this writing, Ethan Roberts did not hold a position in any of the aforementioned securities.

  1. U.S. GDP Growth Rate:
  2. As I recently pointed out:
  3. LEN:
  4. KBH:
  5. DHI:

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