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Hand in Hand? Housing’s Impact on the Economy

by Chicago Agent

Opinions continue to range about the housing market's effects on the U.S. economy.

With new data on housing starts out recently and July sales data on the horizon, economists and journalists are debating what role housing plays in the U.S. economic recovery.

Just to recap: housing remains in a delicate position, though recent data seems to suggest positive news. Housing starts were down just 1.5 percent (far below analysts’ grim predictions of 5+ percent), the National Association of Realtors just released data indicating historic levels of affordability in housing, and the New York Federal Reserve released findings that consumer credit is improving.

But still, the debate continues on housing’s role in the U.S. economy, which continues to struggle with high unemployment and weak job creation. And as before, when Chicago Agent reported on Morgan Stanley’s opinions on housing, opinions are mixed.

For instance, Time ran a story yesterday on housing, quoting some sources that put as much as $600 billion on housing’s plate for lost economic activity. Add to that an additional $500 billion of spending that a healthy housing market inspires, and the total is $1.1 trillion, or, 7 percent of GDP.

But at the same time, other sources see such proclamations as exaggeration. The fact of the matter, say other economists, is that housing and real estate simply do not produce enough jobs to have such impact, especially when stacked against the U.S. economy on the whole. One statistic the article cited had the housing/construction job totals at one million, or, less than one percent of the U.S. labor market.

Regardless of how much blame people put on housing, though, the fact remains that solutions – not rhetoric – are the preferable remedy to the housing market’s ills, and Time also ran a story speaking to that topic.

Focusing mainly on foreclosures and jobs, the article focuses on how keeping people in their homes, stemming foreclosures and committing to job creation are three musts for a healthy real estate industry.

Stephen Gandel, author of the article, writes, “The biggest factor that boosts the housing market is more jobs. People buy houses when they are employed. They don’t when they are collecting unemployment checks. So the best way to stimulate the housing market is to start with the jobs market.” Gandel goes on to cite Alan Blinder, a Princeton economist, who recommended a tax credit for businesses that hire new workers.

Gandel’s assessments, though, are a contrast to the gloomier perspectives of Morgan Stanley’s analysts. Painting the housing market in dark tones (they even label the current market as “unsustainable”), the analysts focus not on jobs, but on the oversupply of homes in the market that are either vacant properties or foreclosures. They go on to suggest that foreclosed homes could be sold in bulk to investors, who would then rent out the properties.

Whatever one’s perspective, though, there is one thing that nobody disagrees on: a healthy housing market, and all the perks that go along with it, is essential for a healthy economy.

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