SEQUESTRATION: Hardship for Weber and Davis Homeowners?

Home prices are directly correlated to median income.  The higher incomes are, the higher house prices will be for a given geographic location.  This phenomena explains how Ogden Victorian homes sell for $80 per square foot while the same home in Salt Lake City's avenues sell for $150 per square foot.  The homes are the same but the household income's of those living in them are different.

Birds of a feather flock together and there is usually a socio-economic self segregation that occurs in nieghborhoods.  In older neighborhoods, it is typically in smaller and more distinct areas, however we see in large suburban developments how homogeneity prevails and expansive communities can be created around a specific income profile.

These large suburban communities are about to be dealt a blow as household income is scheduled to take a very unfortunate turn downward.  The Federal government will enter what is termed "Sequestration", or a fancy term meaning budget cuts, on March 1st.  These cuts will impact Hill Air Force Base beginning April 1st.

So what do these cuts look like?  For starters, sequestration will affect 11,500 workers and will reduce their pay by about $7,000 per employee per year.  That is over $80M that will go missing from Weber and Davis County economies over the next year.  

So how does this affect house prices and the housing market in general?  Well, to get a sense of the impact let's take a look at communities that house the majority of HAFB employees.

The population of HAFB workers affected by this pay decrease is approximately 6.3% of the total population of the communities where they reside.  For ease of calculating, lets assume that everyone else's incomes are not impacted by this change. (Note: In reality, the loss of income will vector throughout the economy by decreasing consumption at local businesses and affect profitability and secondary employment as well.)  If 6.3% of the population receives an 8.5% decrease in pay, the average median income for these communities will decrease by just .54%.   That doesn't seem like a lot.  However, when house prices have otherwise been increasing, a .5% decrease means the difference between a recovering market and a soft buyer's market.

I expect that the price increases we have seen over the past year will slow and flatten in light of these new developments.  We likely won't see meaningful price increases over the next year in these communities. HAFB employees are likely to be found selling and downsizing or possibly even finding themselves in a short sale situation or foreclosure.  If the cuts are permanent, I would expect to see things pick up again in a couple years as the economy adjusts.  If they are not permanent, then we may see an economic surge and housing bounce once pay is reinstated again.

Either way, it is best to have a Professional at your side to aide you.  If you are in the real estate market or thinking of selling your home, CONTACT ME and we will put together a plan that meets your needs.