Housing's comeback is the most important economic story of the moment -- and maybe the year.
In 2010, our economy seemed to be rounding a corner, and Goldman Sachs led the economic cheerleaders by predicting that the next year would be "the Year of the USA." Then gas prices spiked, growth dropped to 1% in the summer, and we barely got to September without defaulting on our debt on purpose.
In 2011, our economy seemed to be rounding a corner again, with job creation regaining momentum. But so far, 2012 has been a clone of 2011. GDP growth has wavered between 1.5% and 2% (just like last year) and job creation has hovered just under 150,000 per month (just like last year).
Now, for the third straight year, there is cause to wax optimistic in the fall. But this year is different for one big reason: The housing economy truly seems to have turned a corner.
Houses and cars make and break recoveries. In 1971, car and home sales accounted for half of the economic recovery. In 1981, they accounted for a third. But in this recovery, depressed residential investment has been the single greatest enemy of growth. That's starting to change.
Housing starts (i.e.: breaking ground on new homes) are up 25% from last year.
The story is especially dramatic for multifamily homes, which experienced a less frothy bubble in the early 2000s.
What's more, housing permits (i.e.: the permission to begin construction) are up 45% over September 2011. And there is a good reason to think their growth will accelerate. Matt O'Brien shared this graph with me, which shows the close relationship between our two best recovery friends: cars and houses. Their relationship is symbiotic and correlative. If you buy a house, you probably need a car. If millions of families are confident and flush enough to buy a car, millions of families are probably also confident and flush enough to afford a down-payment. All this suggest that the pace of the auto recovery could predict a strengthening housing recovery in the coming months. Throw in the effect of unlimited QE, and you've got yourself a real recovery.
What could possibly go wrong? Anything, frankly. China could fall apart. Europe could fall apart. A Middle East war could send gas prices soaring, recreating the disappointing spring of 2011. Congress could always create some unnecessary drama over taxes and spending.
But let's focus on the positive. Housing's comeback is the most important economic story of the moment, and maybe the year. Here's why. If residential investment simply returns to its long-term average (going back to the 1990s), "it would add 1.7 percentage points to overall growth in the coming year," Neil Irwin writes, putting overall growth in the coming year at about 3.2%.
Now that's something you could call a recovery.
We want to hear what you think about this article. Submit a letter to the editor or write to firstname.lastname@example.org.