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Analysis: Housing Still Best Hope as Recovery Sees Growing Pains

Despite ""lackluster"" performance from the economic sector, the housing recovery will press on and stimulate overall growth, according to ""Freddie Mac's"":http://www.freddiemac.com/ most recent economic and housing ""outlook"":http://www.freddiemac.com/news/finance/tab_outlook.html.


Over the past four years since the recession ended, GDP has grown only 9 percent.

At the current rate, the ""U.S. has experienced the weakest economic recovery coming out of a recession in the Post-War era,"" said Frank Nothaft, Freddie Mac VP and chief economist.

For example, during four-year periods following the past 10 recessions, GDP grew by an average of 17.4 percent, according to the GSE's report. The recovery beginning in 1949 was the strongest, with GDP growth averaging 26.7 percent, while the 1954 recovery was the weakest, with GDP growth averaging a rate of 10.3 percent.


On the upside, the housing recovery is persisting at a strong pace. According to Freddie Mac, data shows housing starts have risen 18 percent and home sales are up 13 percent year-over-year as of the second quarter. Home prices indices also indicate prices are up by about 10 percent compared to a year ago.

So, despite the ""frustratingly slow"" growth rate, Freddie Mac expects the housing sector to aid the sluggish economic recovery in three ways.

For one, demand for housing should lead to more construction activity for single-family and multifamily properties and benefit home sales. For the second half of this year, Freddie Mac projects housing starts will average just below one million. If this comes to pass, the six-month period would be the best since the first half of 2008.

Secondly, as rising prices provide greater equity for homeowners, more wealth will be created for American households. This improvement in household wealth generally leads to an increase in consumption spending, according to Freddie mac.

Finally, improving home values should also give a push to small business growth since a ""business owner's home often serves as collateral for a start-up,"" the GSE stated.

Freddie Mac also noted research from analysts representing the Census Bureau and the University of Maryland show weak home price improvements have been a key reason for the slow growth of small businesses.

About Author: Esther Cho


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