Could Housing Rescue The U.S. Economy?October 19, 2012 | Comments : 0 Recommended this article: (0)
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The U.S. housing market, and its toxic mortgages, were the catalyst that triggered the worst global recession in 70 years.
Five years later, it appears the U.S. housing market is on the verge of a real recovery.
September housing starts rose 34.8% compared with last year, to 872,000. Single family home starts jumped 11% to 603,000, the first time that single family home starts had been above 600,000 since 2008.
Permits were also encouraging, surging 45% to 894,000, compared with a year ago. Once again, it wasn't just permits for apartment buildings. Single family home permits rose 6.7% to 545,000 from August.
In the past, single family home starts would sharply increase out of recessions. It was housing which provided the extra boost to the economy.
Take a look at the early 1980s recession in the calculatedriskblog.com chart below. Housing starts, which is the blue line, surged out of that recession and then employment followed about a year later. (The recessions are the light blue periods.) There is usually a lag time between starts and hiring as it takes time to hire and get the housing machine ramped up again.
But the chart looks different coming out of the Great Recession. Single family housing starts have been flat or have only spiked higher due to the government first time home buyers tax credit.
But employment, which is the red line, is starting to up tick, ahead of housing starts. And now, with the September data, we are also finally seeing housing starts jumping higher as well.
Housing is suddenly contributing to the economy, instead of being a drag on it. If the pattern holds, that should be good news for the unemployed in the next 12 to 18 months.
Could housing be the catalyst that rescues the U.S. economy even as the rest of the globe faces a slowdown?
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