The US economy is following our “Second Recovery” scenario, in which the long-delayed recovery in housing finally occurs. Residential construction has always led the way during previous economic recoveries. This time the economy recovered, with residential investment weighing on rather than lifting real GDP. The recent upturns in housing starts and building permits … indicate that housing will boost real GDP this year. In addition, consider the following:
(1) The rebound in home building is a powerful source of economic growth since it stimulates construction employment, which is up 169,000 over the past nine months, and 135,000 the past four months. Also getting a boost are numerous housing-related industries including building materials, realty, and mortgage finance.
(2) Another big positive for the economy is rising home prices. Residential real estate is probably the most highly leveraged asset in the portfolios of most homeowners. So a 10% increase in home prices will raise homeowners’ equity by much more. A recent CoreLogic report said there were 1.7 million fewer homes considered underwater in the fourth quarter of 2012 than there were in the same period in 2011. The percentage of homes worth less than what was owed on their mortgages fell from 25.2% at the end of 2011 to 21.5% a year later, the report said.
Residential investment added to GDP last year for the first time since 2006. Interesting to see how the housing recovery affects US internal migration, which seems to be on the upturn after the big freeze caused by the Great Recession.