The Business Record recently asked a number of economists to assess various aspects of the Greater Des Moines economy. Responses came in from experts in a variety of areas, including commercial real estate. Art Cox, professor of finance and director of the Center for Real Estate Education at the University of Northern Iowa, provided his thoughts on the housing market.

Question:
What are your predictions for how the housing market will fare in 2018 — nationally and in Iowa?

Response:
“Whatever the housing market does nationally, Iowa will do less. Vice versa, whatever Iowa does, the national market will do more.

“By this I mean historically Iowa markets increase less and decrease less than nationally. Within that context, I do believe housing markets will generally perform well during 2018. Perhaps obviously, some markets and some price ranges will perform better than others.

“In my opinion, the first-time homebuyer and second-time or move-up homebuyer segments will likely be the strongest in terms of price. This may be especially the case in localities where rental rates have or are increasing rapidly or where the rental market supply is tight. Despite the reported vacancies and potential oversupply of rentals, I believe this is for the most part applicable in the Des Moines metro.

“The recent tax reform legislation will have limited, if any, adverse effect on the first-time and second-time homebuyer markets. The mere existence of mortgage interest and property tax deductions is not sufficient in and of itself to cause a family to buy a home. On the other hand, the American dream of homeownership is still strong enough that nonpecuniary benefits of homeownership for many households continue to result in them purchasing homes. This is the case even in markets where the financial performance over the last three decades or so would otherwise point to a financial advantage to renting. 

“The top 10 percent or so of homebuyers will continue to be active. Their income and/or net worth are large enough they are likely able to insulate themselves from the vagaries of tax policy and downturns in the value of financial assets. That leaves the second, third and perhaps fourth decile of homebuyers as the most uncertain in regard to homebuying. The second and perhaps third decile have sufficient resources to be able to rent, and are more and more likely to do so if they see housing prices as too expensive. The fourth and perhaps third decile are probably most reliant on their investment portfolios, and as a result most sensitive to fluctuations in stock and bond markets. In addition, the upper deciles of households tend also to be older, i.e., close to or in retirement. These households will be more likely, as time goes by, to relocate into senior housing, especially as the variety and quality of senior housing improves, as it has so dramatically in the last few years.”

Question:
Briefly, what’s one threat to the economy that you are keeping a watchful eye on, and why?

Answer:
“The stock market. A substantial drop in the stock market could have a chilling effect on housing markets. This is especially the case for first-time, move-up and recreation-home buyers who are dependent on the value of their savings as the source of a down payment. A fall in the stock market will also undo the wealth effect carrying over from 2017’s strong market performance.”

Read more responses at BusinessRecord.com.