If you’re interested in the role housing plays in a broader economic recovery, check out this paper from Harvard’s Joint Center on Housing Studies (“Frequently asked questions about the role of housing in recessions and recoveries,” August 2009). Though it’s a year old, it still captures some data from this recession and compares it to previous ones.
A key insight from the bottom of page 1: “Housing turnarounds usually start before recessions end. For all but two of the recessions since 1947, the first quarter in which the change in residential fixed investment [RFI, a component of GDP] turned positive was within two quarters of a sustained turnaround in GDP.”
Cue an updated chart from the BEA:
Click the chart to enlarge if you need to see closer, but you can see without even zooming in that RFI dropped in 3Q 2010, effectively wiping out whatever additions occurred in Q2. I would also point out that RFI includes equipment built into structures, such as HVAC units and granite counter tops, so the increase in Q2 2010 could represent builders rushing to finish units under contract before the expiration of the tax credit in the spring. The tax credit should cause everyone to look at indicators like this with suspicion.
They say we are technically in a recovery, and it is true that turnarounds never feel particularly good at the time. But if this really is a sustained economic recovery, it will be the exception, as it’s not being led by RFI.
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