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Economics

Housing is improving, yet is now the economy’s biggest drag

When looking at which sectors are holding the economy back, housing appears to be the biggest culprit, but isn’t housing improving?

house sales

You’ve heard the drumbeat of improvement in the housing sector – in the last two years, sales numbers have jumped up, home values have improved, and housing starts have increased. The engine that is housing is running, but a new report reveals that it is currently the single largest burden on the sputtering economy.

According to the NYTimes, the economy remains weak, with 11 sectors analyzed for failure and success, combining for a total deficit of $845 billion.

holding back the economy

Nearly 55 percent of the sectors have normal or strong output, with some surprises, but housing proves to be one giant stick in the mud, accounting for $239 billion in missing economic output.

Economic reporter Neil Irwin writes, “the short version is this: Even years after the housing bust, the United States is building far fewer houses than would be expected given demographic trends. It may be that a broader shift is underway in the desire and ability of young adults to get homes of their own. Regardless, it is holding back construction and home sales activity.”

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Further, the National Association of Realtors (NAR) maintains that lending remains restrictive to a point that excludes more buyers than the economy calls for, and as affordability levels decrease, even more buyers are left out in the cold, despite a desire to buy.

It can be confusing, but it’s true

As the economy sputters, analysts are examining the recovery from every angle, and when looking at the underperforming economy, the NYT is pointing their fingers squarely at housing as the worst performing sector, followed (not closely) by state and local government, durable goods consumption, business equipment investment, federal government, nondurable goods consumption, and lastly, business structures.

It can be confusing, because the headlines regarding housing are increasingly positive, but it doesn’t exclude it from being the most underperforming sector, doing its fair share to impede the overall economy’s recovery.

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Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

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