The KCM Blog - Housing
is Helping Rebuild the American Economy
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Posted: 20 Aug 2013 04:00 AM
PDT
Freddie
Mac in their report, August 2013 U.S. Economic & Housing Market Outlook,
explained the three reasons why housing is the key driving force to the
overall economic recovery.
The Challenge
The report explains that the
path to recovery has been historically slow:
The Great Recession
officially ended in June 2009 and, with the release of the second quarter
GDP, we now have data on four full years of economic recovery. The data
release confirmed what many have felt: four years of recovery have only
brought lackluster growth. Compared to all prior postwar recoveries, this
expansion has been the weakest. Real GDP has risen by only 9 percent since
the recession officially ended, while it grew an average of 17.4 percent in
the four years following the end of the previous ten recessions.
The Answer – Housing
Freddie Mac explains that
housing drives the economy in three ways. Here are excerpts from the report
on each:
Demand for Housing Will
Drive Employment
Increased demand for
housing will help stimulate new single-family and multifamily construction
and boost home sales. We 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. This increased building and sales will add approximately
3/8 of a percentage point directly to GDP growth through residential fixed
investment and will employ many more workers in construction and at other
housing related firms.
Rising Prices = Increased
Family Wealth = Increased Spending
With housing being the biggest asset of most American
households, rising house prices directly affect the balance sheet of
homeowners. Home equity is the largest component of net wealth for many
families. As wealth rises, households generally increase their consumption
spending. They may even tap into their equity through a home-equity loan,
using the proceeds for either consumption or investment 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, up from a year
ago.
Small Business Development
is Funded through Home Equity
Rising house prices will
help the economic recovery by spurring small business formation, as a
business owner’s home often serves as collateral for a start-up. Small
business growth has been very weak during the recovery…Recent research by
analysts at the U.S. Census Bureau and University of Maryland indicated that
slow house price growth has been a key contributing factor to anemic small
business growth. According to their analysis 42 percent of the decline in the
performance of young firms (relative to mature firms) is due to declines in
home prices.
As Freddie Mac explains, the
housing recovery is crucial to the recovery of the overall economy.
To see the economic impact of a
home sale in your state, click here.
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