Housing Market Recovery: A Crucial Catalyst for Economic Growth

Strategic Insights -

The housing market has been a driving force in past recessions, but it has been derailed this time around due to the effects of the housing bubble. Despite this, the good news is that residential investment is unlikely to fall further, and its contribution to the overall economy is decreasing. A recovery in the housing market would be a significant catalyst for economic growth, as every house built generates a substantial amount of economic activity.

Key Takeaways:

  • The Homebuilders Index has remained unchanged, as the housing market has been derailed by the housing bubble.
  • Residential investment is now just 2.22% of the overall economy, down from a peak of 6.24% and a long-term average of about 4.5%.
  • The consensus is looking for a slight bounce in housing starts, rising to an annual rate of 545,000 in November from 519,000 in October.
  • Building Permits are also expected to show a little bit of life, rising to an annual rate of 560,000 from 550,000.
  • From current levels, even modest housing starts would generate significant percentage increases.
  • Homebuilding generates substantial economic activity, including jobs for lumberjacks and manufacturing, as well as stimulating employment in restaurants and other industries.
  • D.R. Horton (DHI), Berkshire Hathaway (BRK.B), Masco (MAS), Darden Restaurants (DRI), and SurModics Inc. (SRDX) are among the companies that would benefit from a housing market recovery.

Statistics:

  • Residential investment is now 2.22% of the overall economy.
  • The peak of residential investment was 6.24% of the overall economy.
  • The long-term average of residential investment is about 4.5% of the overall economy.
  • The expected bounce in housing starts is to an annual rate of 545,000 in November.
  • The expected bounce in Building Permits is to an annual rate of 560,000 in November.
  • The current annual rate of housing starts is 519,000.
  • The current annual rate of Building Permits is 550,000.
  • The peak of housing starts was 2.273 million in June 2006.
  • The peak of Building Permits was 2.212 million in January 2006.

Sources:

  • Zacks Equity Research
  • Zacks.com (Analytics Blog)
  • D.R. Horton (DHI)
  • Berkshire Hathaway (BRK.B)
  • Masco (MAS)
  • Darden Restaurants (DRI)
  • SurModics Inc. (SRDX)