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Housing Market Drives the Economy

When economists were surveyed by CNNMoney and asked to identify what the primary drivers of economic growth were in 2012, over half of them responded with a housing recovery. The other half were split fairly evenly between consumer spending, increased domestic energy production and stimulus from the Federal Reserve as major growth drivers.In 2008, the housing bubble burst and drove the economy head first into one of the biggest recessions we have ever experienced. For this reason, many economists say it is the housing recovery that will pull of out the recession."Homebuilding activity will likely remain the strongest growing component of the economy in 2013," said Keith Hembre, chief economist of Nuveen Asset Management. "After several years of excess supply, demand and supply conditions are now in much better balance."Home sales, home building, and home pieces are up while foreclosures and mortgage rates are dropping. Professionals in the industry forecast a 50 percent increase in home building and buying, which can mean more than 1 million new jobs across the country. New jobs will be in more areas than just construction, but also manufacturing jobs building the appliances and furniture needed in the new homes, which in turn drives overall consumption higher.Economists say the tight supply and renewed demand should lead to higher home values, which is good news for sellers. When home prices increase, Americans can rest easier knowing that their home is still an asset, not a liability. This can lead to consumer confidence in other areas of the economy which can also drive growth upward and lift America out of the recession."One of the most significant indirect effects from the housing recovery is the 'wealth effect' on consumers due to the recovery in home prices," said Joseph LaVorgna, chief U.S. economist of Deutsche Bank, who said better home values can affect both consumer psychology on spending as well as their actual finances.

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