Our economy is cyclical and often it acts like a pendulum that swings too far. And it did. In the lead-up to the financial crisis in 2007-2009, U.S. Housing completions peaked at just over a 2.2 million unit annualized rate. During the great Recession that followed (recessions are denoted in grey), housing completions plummeted to 520,000 or a 75%+ reduction in new housing.
What is significant, is that while the recovery of the housing markets has doubled in units, the current housing completion levels have only recovered to every other economic and housing trough going back to 19591. In other words, today’s recovery is still at the worst levels of past cycles. Worse yet, as the bottom part of the chart illustrates, the housing recovery pace is weakening as the annual rate of change is in a declining channel.
Why is this so important to U.S. growth?
Housing employs the trades: From the cement truck drivers to the carpenters, plumbers and electricians on up to the roofers, it puts many people and firms to work. Housing stimulates the financial sector: Realtors get paid and banks make loans. Housing stimulates capital goods production: In addition to the lumber, pipes and other construction materials, houses need washers, dryers, refrigerators and furnaces. Housing stimulates services: Homeowners subscribe to cable, landscaping and a host of other utilities and services. Housing stimulates consumers and consumption: Once purchased, we fill our homes with furniture, curtains, rugs, electronics and a plethora of other things. New housing is a major financial engine within our economy.
In a world seemingly full of extremes, it might behoove our Government to focus on housing. Banking regulation, rising interest rates and the debt levels of our younger generations is muting the housing recovery. If we want more robust growth, we need to address our housing industry. But this time, let’s not swing the pendulum too far.
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1 U.S. Census Bureau
