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.