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Strong Housing Market Expected to Push More Economic Growth

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The improvements seen throughout the housing market for more than a year now have been considerable, and many experts believe that those positive changes will in turn eventually drive the broader national economy toward similar gains.

One such expert is Federal Reserve Board Governor Elizabeth Duke, who says she is optimistic for the state of the national economy specifically because housing continued to improve even as gross domestic product growth stalled at the end of last year, according to a report from Bloomberg News. In particular, several areas of the housing market took steps forward in the final three months of the year – traditionally considered to be low points in the real estate calendar on a historical basis — even as GDP shrank at an annual rate of 0.1 percent between October and the end of the year.

“We are seeing steady increases in house prices,” Duke said, according to the news agency. “We are seeing improvements in new residential construction and also in household formation, which is the demand for houses. … The question really is how much of that momentum in housing, which I expect to continue, will spill over into better consumer confidence, better business confidence.”

Interestingly, housing recovery has been behind economic improvements after downturns quite often in recent history, the report said. One of the main drivers behind recovery after every recession since 1950, except for the most recent one from 2007 to 2009, has been the housingmarket. Therefore, if the current housing improvements continue anywhere at or near the current rates, it’s likely that the entire economy will come with it.

Further, increased buyer interest in the market itself, while an indicator of consumer confidence in a general sense, could also be a boon for banks, the report said. Duke believes that community banks in particular could see more business as a result of higher demand for mortgages, and could also benefit from interest rates that, while currently low, should also rise over the next few years.

Prices are rising somewhat quickly, but the current interest rates for mortgages are still so low that affordability remains extremely high. As such, many buyers who are now feeling better about their finances are creating more competition in the market, even as sellers seem to remain somewhat unconvinced that now is a good time to sell their properties.

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