The chicken or the egg? Isn’t housing supposed to lead the recovery?

In most recent economic recoveries, residential construction has led the general economic recovery.  Home purchases are very sensitive to interest rates, which tend to be their lowest at the end of a recession. Consequently, interest sensitive purchases, such as homes and automobiles, are the first to rebound at the start of a recovery.

This time around we seem to be witnessing an anomaly.  As seen in the chart below, housing starts, both total and single-family, remain around their 30-year lows.  This recent housing crisis has clearly been significant enough that even low interest rates (average 30-year conventional mortgage below 5%) cannot spur new construction.  Housing will not make any real contribution to the economic recovery until supply and demand equilibrium is back at a level that stimulates new homebuilding.  When that will happen remains the big question.

Total and single-family housing starts in the US, 1980-present

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