Analysis: Waiting for housing to drive the U.S. economy

Sun Nov 4, 2012 4:03pm EST
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By Leah Schnurr

NEW YORK (Reuters) - The U.S. housing market is on the mend, but the so-called "missing piston" of the world's biggest economy doesn't have enough power to get the broader recovery firing on all cylinders any time soon.

Construction and related activity will help rather than hinder U.S. economic growth this year for the first time since 2005. That was before the housing bust helped push the United States into recession, triggering the global financial crisis.

Higher sales, prices and building, albeit modest so far, are a welcome boost as other drivers of the economy falter.

Nonetheless, housing still accounts for only a small part of gross domestic product compared with the boom years.

The housing sector "would have to be on steroids to significantly boost GDP growth," Paul Dales, an economist with Capital Economics, wrote in a recent research note.

Neither presidential candidate has signaled any new plans to help housing, although the Federal Reserve, aware of the important role of the sector in underpinning the economy, is focusing its latest stimulus efforts in mortgage bonds.

Typically, housing leads the U.S. economy out of recession. But the vast equity losses have stymied the market this time.

Housing's most direct impact on growth is via construction, remodeling and associated services, known as residential investment. Its contribution to GDP has shrunk from a historical average of about 5 percent, and over 6 percent in 2005, to 2.5 percent in the third quarter of this year.   Continued...