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October 25, 2014

Can Housing Save a Sluggish Economy?

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Can Housing Save a Sluggish Economy?

“Good news in the housing sector bodes well for future economic growth,” according to Freddie Mac’s August 2013 U.S. economic and Housing Market Outlook report. 

Four years into the recovery, and lackluster economic growth persists. Housing continues to be one bright spot, providing a positive boost to the GDP in the second half of 2013, the report notes. 

"The economic recovery has completed its fourth year, but it has not been without growing pains,” says Frank Nothaft, Freddie Mac’s chief economist. “The U.S. has experienced the weakest economic recovery coming out of a recession in the Post-War era. 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."

Economists point out in the report that the positives in the housing market can help lift the economy in three main ways:

-Increasing construction. Rising demand for housing will help increase new single-family and multifamily construction, and in turn boost home sales. Economists project that starts will hover just below 1 million over the second half of the year, which will mark the best six-month building pace since the first half of 2008.

-Wealth effect. "Through the housing wealth effect, rising home prices should help to spur consumption spending," economists note. Home equity lending is already showing signs of rising. In the second quarter, $9.5 billion in home-equity was cashed-out as part of a refinance. 

-Rising home prices. The uptick in home prices will aid the economic recovery by helping to spur small business formation — “as a business owner’s home often serves as collateral for a start-up,” economists note in the report. 

Source: Freddie Mac

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