The bursting of the housing bubble plunged the economy into a recession from which it has yet to fully recover. But economists say this could finally be the year that housing lifts us out of the doldrums.
Home sales rebounded to the strongest level in five years in 2012, as home building bounced back to levels not seen since early in the recession. Near record low mortgage rates, rising home prices and a drop in foreclosures have combined to bring buyers back to the market. Economists surveyed also forecast that there will be just under 1 million housing starts this year -roughly matching the 28% rise in home building in 2012. Moody’s Analytics is forecasting much stronger growth – a 50% rise both this year and next year, which it estimates will create more than 1 million new jobs.
And economists say the tight supply and renewed demand for housing should lead to higher home values -about a 3.7% increase according to the survey. “One of the most significant indirect effects from the housing recovery is the ‘wealth effect’ on consumers due to the recovery in home prices,” said Joseph LaVorgna, chief U.S. economist of Deutsche Bank, who said better home values can affect both consumer psychology on spending as well as their actual finances. “Even small moves in home prices can have large effects on consumption, because housing comprises such a significant share of household assets,” he said.