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How Housing Is Leading Us Out of the Great Recession

How Housing Is Leading Us Out of the Great Recession

We are often asked if the housing market can truly rebound if the all-round economy remains sluggish. We answer by explaining the housing market is not dependent on the economy but rather the economy is reliant on the housing market. Mark Zandi, Chief Economist at Moodys.com, addressed this issue in a recent report.

 “Historically, housing has always led the U.S. out of recessions. It is the most interest rate-sensitive part of the economy, and as rates fall during recessions, housing rises first.”

How does real estate impact the economy?

Real estate impacts the economy in several ways. As Zandi explains:

“Housing’s resurrection is crucial to the creation of more jobs. Every new single-family home creates and sustains almost five jobs for about a year. These include not only construction jobs, but manufacturing positions for producing lumber, paint, nails, plumbing fixtures, carpets, wall board and so on. Truckers are hired to move this material around, and retailers add workers as new homeowners shop at home-improvement and hardware stores. Realtors, mortgage bankers, landscapers and cable installers all increase staff.”

Is the current market momentum sustainable?

If the economy is dependent on a recovering housing market, we need to know whether the current good news being reported in the real estate industry will continue as we move forward. Again, Mr. Zandi:

“The pace of construction has risen to 900,000 homes per year and is set to double to 1.8 million in the next few years. Even this will be only enough to meet demand; in an average year, 1.25 million households are formed, 350,000 houses are irreparably damaged or demolished, and an additional 200,000 are built for use as vacation or second homes. Given pent-up household formation—hundreds of thousands have put off their plans because of the tough job market—there could be a couple of years in which closer to 2 million homes will need to be built to meet demand.”

Housing will remain strong for the next several years. That will enable the economy to continue to heal until it fully recovers.


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1 reply
  1. Victor Rader
    Victor Rader says:

    Overall the article is good regarding the question of sustainability, but I think the idea that housing “Leads” us out of a recession is questionable. The recession ended in June 2009 and it certainly wasn’t a recovery in real estate leading the way. My experience and observation over the last 35 years is that jobs leads us out of a recession, and jobs drives real estate. The last thing someone losing their job or worried about losing their job is going to do is go out and buy a house, so I say by the time we see a strong recovery in the housing market (as we have for the last year now, and don’t forget the “forward looking” stock market is 4 years into a bull market now) the consumer sentiment has shifted to confidence that the worst is over and the economy is improving. Housing certainly creates jobs and fuels the recovery fire, I just wouldn’t say it’s leading us out of the recession (that ended almost 4 years ago)…I see it as a lagging indicator that the economy is well on it’s way to continued improvement for years to come…

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