There is no sector of America’s economy that is more cyclical than housing. If it is pushed down far enough and long enough, as it was in the post-2008 housing depression, it will eventually snap back to levels that exceed historical norms. That turn in the market is occurring now and it should become a boom by 2015. It will be powerful enough, together with rising oil and gas production and other factors, to lift the entire US economy. Indeed, the resultant US economic growth rate may be higher than the Federal Reserve’s long-term forecast of 2-2.5 per cent.
This surge will be driven by a combination of improving house prices, a lower inventory of homes for sale, rising rates of household formation and population growth, and improving access to mortgage credit. Together, they should push residential investment, which includes both new construction and remodellings, to annual growth of 15-20 per cent during the next five years. This alone may contribute 1-2 percentage points to annual growth in gross domestic product and up to 4m jobs over that period.
It is the depth of housing’s fall that has laid the foundation for this. And it is hard to exaggerate how deep that was. Single family housing starts, for example, averaged 1.4m annually during the 2000-04 period, before the bubble. After it, they plunged to an average annual rate of 500,000 and stayed there. New home sales, which previously averaged 900,000 a year, fell to a third of that. And residential investment, which averaged 4 per cent of US GDP over the 25 years ending in 2005, has accounted for only 2.5 per cent of it since 2008.