The United States has had 11 recessions since the end of the Second World War. All but two were preceded by a sharp decline in the housing market.
Inside this table, there is some basic information about the disproportionate role of housing in the business cycle, as well as indications that the economy is on a stronger foundation than the increasingly pessimistic forecasts . The bottom line is this: the United States may not go into recession this year, but if it does, it is unlikely that housing will be the cause because it does not come into recession this year. never really recovered.
"The housing is not able to bring this case down," said Edward Leamer, Professor of Economics at the University of California at Los Angeles.
The extent to which this can help prolong the global recovery is another problem. Housing sales and prices were stagnant in the face of rising interest rates. Nevertheless, the pace of construction, combined with the pent-up demand of young adults, suggests that the sector should at least remain stable in the face of uncertainties elsewhere.
Why is housing so often the focus of concern as economic expansion continues? Here are some reasons.
Housing is more volatile than large areas
Although housing does not represent such a large part of the economy, its role in a recession is enormous, as it is highly cyclical and interest rate sensitive. Think of expansions and recessions as the cycle of things going up and down a lot. Housing is a determining factor in the direction this cycle takes because, unlike many other sectors, it has large fluctuations.
The housing sector accounts for only 3% of economic output during a recession and about twice as much as during boom periods. The other components of the economy are much larger, but they do not change as much in terms of downward growth. Public spending, for example, has fluctuated between 17% and 20% of the economy for decades. The variation of three percentage points is about the same in all cases, but the government is much more than the economy. Translation: Housing punches well above its weight.
As a result, while housing has never accounted for more than 7% of total production, it has averaged about a quarter of the decline in recessions since World War II, according to a 2007 article by Leamer entitled "Housing is the business cycle. "
After housing, consumer durables or expensive purchases such as cars, furniture and appliances are the sector that has historically been the second most important factor in the recession. These are often linked to the prosperity of the housing market because people buy other things when they buy a home.
Recessions may have other causes, but they only highlight the role of housing in economic cycles. The recession of 1953 followed a decline in public spending after the Korean War and the 2001 recession was driven by a decline in business spending after the bursting of the Internet bubble. Both were relatively brief and shallow – the 2001 recession was the least severe since World War II – in part because investment in housing remained stable.
The last recession, from 2007 to 2009, was one of the most exaggerated examples of the driving role of housing in times of economic downturn. A recent report from the Federal Reserve Bank of St. Louis revealed that the construction sector was at the origin of just over a third of the decline in production recorded during the last recession. about half of job losses (figure that includes construction workers laid off and job losses in related industries).
What is the housing like now? Mixed, but mixed so that the most important elements for economic growth are the most stable.
Prices discouraged buyers
Measured in terms of sales and prices, the housing sector seems to be in a precarious position. Existing home sales were down about 10% in December from the year before, according to the National Association of Realtors. The group questioned the rise in prices and interest rates, as well as the lack of supply that left buyers disappointed with their choices.
Part of the problem is that while employment growth has been strong, house prices have risen faster than incomes.
Prices have risen so rapidly that even markets previously considered affordable are out of reach of many buyers. House prices have risen about 50% since 2012, according to Zillow, and many more affordable markets have jumped even faster. In Phoenix, home values have doubled since 2012, unadjusted for inflation. The Denver market is up 90%, Atlanta 84%, Nashville 78% and Dallas 76%. If people can not afford a house in Texas, where can they?
The shock of rising prices, combined with rising interest rates that make monthly payments more expensive, has scared many buyers by the end of last year. Part of this demand seemed to come back at the beginning of the year, after interest rates were brought back to about the same level as a year ago.
Nevertheless, homes are staying longer in the market, price decreases are becoming more common and a number of builders have had layoffs. Before a recent speech to 1,000 people in the housing industry, John Burns, founder of John Burns Real Estate Consulting, asked members of the public to plan for the coming year. They were also divided between those who experienced a decline in sales and prices and those who experienced growth.
"Everyone is very careful right now," Burns said in an interview.
All this looks very bad, but for those who are not trying to sell a home or in the business of selling homes, it's not as serious as it is. It seems.
Builders are less optimistic than in the past
When economists talk about recession in the housing sector, they refer largely to construction, not housing prices. Most of the industry's contribution to annual gross domestic product is residential fixed investment, a category made up almost entirely of single-family dwellings and apartment and condominium buildings (as well as some improvements). and home renovations).
Rising home prices help the economy in a modest but important way, for example by giving people the feeling of being richer and enhancing the equity in their property that homeowners can leverage and spend elsewhere. . But the increase in spending of people feeling richer is not as important as the pace of Sales and the volume of construction, to the extent that they create many jobs – for people like estate agents and mortgage brokers on the sales side, as well as for architects, building workers, electricians, plumbers and others who design and build new homes.
The purchase of a home is small and weaker, so this could be a concern. But the construction borders the moribund. The total number of housing starts increased by 1.2 million per year in January, more than double the number of less than 500,000 during the recession, but still well below 1.5 million on average between 1990 and the beginning of the housing crisis. expanding population.
It is clear that the need for housing exists, so why are not builders building more? It's a disconcerting question.
During teleconferences to announce their profits, publicly traded builders such as DR Horton and PulteGroup said much the same as real estate agents, namely that buyers are put off by higher prices and interest rates crawling. Many builders also cite local regulations that make it harder to build houses in denser areas close to jobs and higher labor costs in a tight labor market.
The general message is that builders can not build houses at the prices that people want in the places people want, so they do not build much at all.
The largest housing demand is in the lower end of the market, the most difficult to serve in a cost-effective way, even though, during teleconferences, a number of builders reported that they were transferring part of their buildings and their land to smaller, less expensive homes. This may or may not improve the pace of construction.
As a result, the housing sector – the components of the residential construction of G.D.P., taken together – accounted for only 3.9% of the economy in the third quarter and helped to curb overall economic output for three quarters.
In other words: housing is already in recession. It might not get better soonbut that will probably not get worse.