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Freddie Mac Finds Housing Sector Beneficial to Future Economic Growth

Aug 15, 2013

Freddie Mac has released its U.S. Economic and Housing Market Outlook for August, showing that despite the lackluster jobs recovery four years into the economic recovery, housing will continue to provide an increasingly positive boost to GDP in the second half of 2013. Four years of recovery have only brought lackluster growth. In terms of GDP growth, the current recovery most closely matches the one beginning in May of 1954, but during that four year period the economy also experienced another recession. Fortunately, good news in the housing sector bodes well for future economic growth. Recently housing markets have shown solid growth. Housing starts were up 18 percent, home sales gained 13 percent, U.S. house price indexes were about 10 percent higher over the past year and serious delinquency rates have declined to their lowest level since the third quarter of 2008. A rapidly improving housing market will help the economic recovery in at least three ways: First, increased demand for housing will help to stimulate new single-family and multifamily construction and boost home sales. Expect starts to hover just below one million (SAAR) over the second half of the year, the best six-month building pace since the first half of 2008. Second, through the housing wealth effect, rising home prices should help to spur consumption spending. Some evidence that home equity lending has picked up was found in Freddie Mac's Refinance Report for the second quarter, which saw $9.5 billion in home-equity cashed-out as part of a refinance, which was up from a year ago. Finally, rising house prices will help the economic recovery by helping to spur small business formation, as a business owner's home often serves as collateral for a start-up. "The economic recovery has completed its fourth year, but it has not been without growing pains. The U.S. has experienced the weakest economic recovery coming out of a recession in the Post-War era," said Frank Nothaft, Freddie Mac vice president and chief economist. "Despite the eye-popping monthly house price appreciation taking place in some parts of the country, the recovery that has lingered for years is just now starting for many Americans. Fortunately, we should see this positive housing trend continue to improve in the second half of the year. A housing recovery is a broad-based recovery, benefiting all Americans, and therefore the overall economy."
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Aug 15, 2013
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