Eakinomics: A Housing Market Update

Eakinomics: A Housing Market Update AAF’s Thomas Wade has released his quarterly update to the Housing Chartbook, a comprehensive summary of real and financial activity surrounding housing. With so much concern over the economic outlook centering on the evolution of the coronavirus pandemic, it is useful to assess the state of the economy before any real impact has registered. Among the positives for a while has been a healthy household sector, while weak business fixed investment has been a notable downdraft on the pace of growth throughout 2019. Housing, in contrast, has moved from dragging down the pace of growth to providing some uplift to the economy. House prices had been decelerating since early 2018, but in mid-2019 house-price inflation picked up (see below). Rising house values reflected the strong labor market, whose jobs, hours, and wage growth were the underpinning of rising household income. In response to growing demand, housing starts checked their decline, turned positive in mid-2019, and moved up sharply by the end of the year. Of course, the contribution to gross domestic product (GDP) is measured by residential construction. It is not surprising that the pattern in residential construction (below) mirrors the trajectory of housing starts. These data represent economic history at this point. But that history is another reminder that the economy remained strong at the end of 2019 and was likely accelerating early in 2020, in part because of the strengthening housing market. By the time the first quarter 2020 GDP data are released, the underlying strength will likely be masked by the impact of the shutdown of the Boeing 737 Max production facility (and the supply chains for it), as well as the early impacts of the coronavirus pandemic.