Search

Avoiding a Double Dip Recession May be up to Housing

by devteam August 16th, 2013 | Share

In its August Economic and HousingrnMarket Outlook Freddie Mac celebrates, sort of, a birthday. It wasrnfour years, at the end of June, since the recession officially ended.rn But four full years of data confirm that widely held perceptionsrnabout the recovery are true; real GDP growth has been slow and thernrecovery has been lackluster. </p

Freddie Mac Chief Economist Frank E.rnNothaft and Deputy Chief Leonard Kiefer note that in the previous tenrnrecessions GDP grew an average of 17.4 percent in the first fourrnyears of recovery; this time real GDP growth has been 9.0 percent,rnmost closely resembling the downturn that began in May of 1954, arnrecession that double dipped.</p

</p

So what is wrong this time? Nothaftrnand Kiefer point to the four components of overall growth;rnConsumption, Residential Fixed Investment, Government Spending, andrnEverything Else, a category that includes non-residential fixedrninvestment, inventories and net exports. In this recovery governmentrnspending has been a net drag for the first time in over 40 years. The Stimulus helped government spending add 2 percentage points torngrowth in 2009 but its subsequent wind down, cutbacks by state andrnlocal governments, and further contractionary fiscal policyrnsubtracted over 5 percentage points from GDP growth post 2009. Another factor, fixed residential investment was absent untilrnrecently. In prior recoveries this component led the expansion andrnhelped to pull other sectors into recovery, adding about a quarterrnpoint to the GDP each quarter. This time the contribution has beenrnone-fifth that. Third, consumption spending has added only aboutrn1.2 percentage points to growth in contrast to the 2.5 point averagernin other recoveries.</p

</p

But there is good news in the housingrnsector with solid growth in housing starts (up 18 percent), homernsales (+13 percent) and national house price indices rising around 10rnpercent in the last year. A rapidly improving housing market,rnFreddie Mac Says, will help the economic recovery in at least threernways.</p<ul<li

Increased demand for housing willrnhelp stimulate new single- and-multifamily construction and boostrnhome sales The report projects housing starts to hover just belowrnone million units (seasonally adjusted) during the first half of thernyear and to add approximately 3/8th of a percentage pointrndirectly to GDP growth. It will also help to employ many morernpeople in construction and other housing-related jobs.</p</li<li

Rising home prices should helprnspur consumption spending by increasing the net wealth of families. As wealth rises families typically increase consumption spending andrnmay even tap into the equity in their homes for either consumptionrnor investment. Freddie Mac’s second quarter refinance report foundrnthat the latter might already be happening with cash-out refinancingrnup from a year earlier.</p</li<li

Finally rising home prices willrnspur small business formation as business owners’ homes often servesrnas collateral to start businesses. Small business growth has beenrnvery weak, actually subtracting from net job creation from 2008rnthrough 2011,. Recent Census Bureau and University of Marylandrnresearch indicate that 42 percent of the decline in the performancernof young firms relative to mature firms is due to decline in homernprices.</p</li</ulrnrn<ul</ul

</p

Nothaft and Kiefer conclude by sayingrnthat the recovery as it passes its fourth birthday has yet to showrnmaturity but may be ripe for a growth spurt. “And that economicrngrowth will be fed by a continued rise in housing demand and propertyrnvalues, which in turn will stimulate job gains, consumption spending,rnand investment; some of the latter in small businesses.”

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of MortgageNewsDaily.com is prohibited.

About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

See all blogs
Share

Comments

Leave a Comment

Leave a Reply

Latest Articles

Real Estate Investors Skip Paying Loans While Raising Billions

By John Gittelsohn August 24, 2020, 4:00 AM PDT Some of the largest real estate investors are walking away from Read More...

Late-Stage Delinquencies are Surging

Aug 21 2020, 11:59AM Like the report from Black Knight earlier today, the second quarter National Delinquency Survey from the Read More...

Published by the Federal Reserve Bank of San Francisco

It was recently published by the Federal Reserve Bank of San Francisco, which is about as official as you can Read More...