CautiousInvestor

Better Housing Numbers Could Boost GDP Growth

You make a good point in saying "the absence of a negative is a positive, and the slower decline in residential investment will be a big part of the reason that second quarter GDP will show a much smaller decline in activity than we saw in the fourth or first quarters." Anything that stops subtracting grom the economy is statistically helpful.

Going forward, new home builders must continue to compete with the growing supply of REO properties acquired through foreclosures which will continue to put downward pressure on margins. Foreclosures show no sign of abating.

Secondly, builder activity mus eventually align itself with new household formation which is expected be around 600,000 per year, with some fraction of these units will buying a new home. This will lead to a market vastly smaller than the recent peak production of 1.4 million units.

Lastly, increases in interest rates along with expiration of the housing tax credit will eventually take its toll. Housing is likely to help the recovery but its effects is likely to be small and certainly not what it has been in the past.