Headwinds for Housing?

If you’re looking for an engine of growth to kick start the US economy don’t look to the housing market, at least that’s what the New York Times argued in a recent article. Central to the Times’ thesis is that housing activity remains a small share of GDP compared with the past. According to the Bureau of Economic Analysis, the housing sector represented 3.11% of GDP in 2013 compared to the long-term average of just north of 4.5%. Secondarily, home construction and housing demand remain subdued. While immigration has slowed in recent years, demographic trends argue for strong housing demand. The nation’s population grew by 20 million since the housing boom and bust, yet fewer households are being created. Prior to the recession 27 percent of 18-34 year olds lived with their parents, today that number has grown to 31 percent. This age cohort faces a bleak job market, according to labor department data only 62.9 percent of 20-to-24 year olds had a job in March down 7 percent from the spring of 2007. Young people with jobs are also living at home more often.  25 percent of employed 25-34 year olds lived with their parents in 2013 compared to 22 percent in 2007. Finally, the New York Times states that while there is momentum forming in the nation’s housing market, it is in rental multifamily properties not single-family housing. Apartment construction contributes less to the overall economy than single-family homes. Moody’s has estimated that every single-family home that is started creates 3.7 jobs over the next year compared with 1.8 jobs for a unit in each multifamily home. While the housing market may face some hurdles in the near-term, we maintain our thesis that this sector will experience accelerating growth as labor market slack declines and the overall employment picture continues to improve, driving wages and growth higher.