Unlike the role it played in the Great Recession that started in 2008, the housing industry may help lead us out of today’s pandemic-induced economic recession, according to Daniel McCue, Senior Research Associate at Harvard University’s Joint Center for Housing Studies. While housing was more of a barrier than a balm in the last economic recovery, it is more typical for the housing industry to serve as a source of strength during an economic recovery. In fact, this has been the case in nearly every recession over the past five decades, according to McCue. In most economic recessions, declining interest rates lead to homebuying and homebuilding, which then lead to spending on consumer goods.
One of the main points of difference between the housing market leading into the Great Recession and the market heading into today’s economic downturn is that the housing market prior to 2008 had a “substantial overhang of distressed and foreclosed properties,” which “needed to be absorbed before housing construction could be a driver of recovery,” McCue said. The housing market early this year, however, had tight supply and low vacancies. Vacancy rates and for-sale inventory rates are lower than they have been in years.
The total housing vacancy rate is 11.4%—2.4 percentage points lower than in 2007. The share of vacant homes for sale is 58% lower than in 2007 and the share of vacant rental properties available is 21% lower. “Hopefully, what these vacancy numbers do suggest is that, in terms of supply, housing construction is not likely to be a barrier to recovery and instead may once again be a source of strength that helps the economy turn around once the worst is over,” McCue said.
Source: DS News
