While houses are (mostly) sturdy, the construction industry is as sensitive as a 19th-century debutante. At the first sign of trouble, it swoons, often knocking the economy down with it. In each of the three recessions before the Great Recession, the economy shrank by less than 2 percent—but housing starts, on average, declined by a third. In the years leading up to the 1990 recession, when real estate bankrupted about half of the savings-and-loans, housing starts fell 44 percent. Usually, an economic recession means a depression in the housing industry.
It’s been worse this time around. From their pre-recession peaks, economic output fell 3.3 percent and employment 6.1 percent, but housing starts dropped 73 percent. Last year housing starts were lower by half than in any year since 1959, when the U.S. population stood at 178 million (compared with 309 million today). About a third of all the jobs lost in this recession have been in construction, real-estate finance, architecture, or building services. Housing prices, meanwhile, have fallen 28 percent, adjusted for inflation, since their peak in 2006—that’s far more than they fell during the Great Depression.
But housing hasn’t cratered everywhere. According to Stan Humphries, the chief economist of Zillow, an online housing-research firm, if you plot changes in home values within a typical metro region on a satellite map, the result “looks like an archery target, with the outlying areas having experienced substantially higher total declines in home values” than areas closer to the central city.