For this reason, housing often leads an economy out of a recession by creating a virtuous cycle of improving housing demand that creates jobs and in turn fosters additional demand for construction.
This cycle is important to keep in mind as we enter 2015. A notable 2014 housing-related economic story was the slowdown in home price appreciation as the rebound from earlier declines weakened. For example, the S&P/Case-Shiller 20-City Composite Home Price Index has experienced almost a year of consecutive declines in year-over-year price gains. For October data, the index showed a year-over-year increase of 4.5 percent, down from recent double digit annual gains. So while prices have continued to rise on average, they have done so at slower rate over the course of the year. This development will likely continue in 2015, particularly as mortgage rates rise.
It is certainly the case that rising home prices helped with respect to household balance sheet repair, which was necessary to recover from the wealth declines associated with the Great Recession. Data from the Federal Reserve’s Flow of Funds indicates a $2.3 trillion increase in housing equity for households from the start of 2013 through the third quarter of 2014. Such wealth gains are key to middle class consumption and investment decisions.
That said, home price gains should not be the only scorecard to gauge the housing recovery. In fact, continued improvements for residential construction will have immediate benefits in terms of job creation and economic dividends. And while multifamily construction has posted impressive growth in recent years (2014’s levels were up almost 200 percent from 2011), single-family construction remains only about halfway to normal building conditions.
Further growth for single-family construction will have large, positive impacts for job creation. Estimates from the National Association of Home Builders indicate that for every 1,000 single-family homes built, enough economic activity is created to sustain 2,970 jobs for a year, yielding $162 million in wage income and $111 million federal, state and local taxes and fees. About half of these jobs are in the construction sector, with the rest in associated business that grow when housing expands.
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Source: U.S. News