Why is a housing rebound important?

Date posted: December 18, 2012

Most of the housing market indicators – such as sales, new construction and prices – have been improving this year. Other than being a positive for those involved in building and selling homes, why is a comeback in the residential housing market important to the general economy? N.C. State University economist Mike Walden responds.

“Well …, I tell people when I give talks around the state, most people don’t have time to look at all the economic numbers I look at, but I say look at anything and read anything you hear about the housing market, because I think it’s absolutely crucial to a better rebound in the economy.

“I think there are three reasons for that: First of all, the residential housing market is a gigantic part of the economy – 12 to 15 percent, when you include all the components. And, for example, the tech sector, which was the sector that crashed and led into the last recession, was only 4 percent of the economy. So, residential housing is really big.

“Secondly, construction jobs … took one of the biggest hits, understandably, during the recession. And we haven’t yet seen a good rebound in construction jobs. Usually construction jobs lead the economic recovery. So I think if we start to get residential housing coming back, we’ll start to get more hiring in construction. That’ll be a big boost I think to job growth.

“And then thirdly, residential housing and particularly the equity that homeowners have in their homes – that’s a big part of household wealth. Household wealth took a big battering during the recession. So home prices, especially, are coming back. That’s going to help people on the wealth side.

“So I think all of these things are very, very important. Now one big unknown that people need to watch: the discussions about changes in the tax code, particularly if they were to affect the mortgage interest tax deduction. Of course that could be a negative if it were curtailed; (it) certainly could be a negative for residential housing.”

 

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