Housing packs punch for growth in 2013 and beyond
The housing rebound is broadening to other parts of the U.S. economy and will likely lend impetus to growth through 2013 and beyond.
Climbing home prices are lifting household wealth and boosting the purchasing power of consumers. Declining mortgage delinquencies and foreclosures are buttressing bank balance sheets, giving them greater leeway to lend. And rising property-tax revenue is fortifying the finances of state and local governments, alleviating pressure on them to cut budgets.
"The housing recovery will kick into a higher gear as the year progresses," said Mark Zandi, chief economist in West Chester, Pennsylvania, for Moody's Analytics Inc. "We're going to get a lot of juice from the channels" through which it affects other parts of the economy.
The spreading impact of housing will help the economy weather looming federal government spending cuts and tax increases and keep on growing. Rising residential construction and its knock-on economic effects will boost gross domestic product by about 0.75 percentage point this year, offsetting much of the drag from the fiscal squeeze, according to Zandi. He sees GDP growing at about 2 percent again this year.
A report from the Commerce Department showed U.S. factory orders rose less than forecast in December, reflecting a drop in non-durable goods that partly countered gains in construction equipment and computers.
Bookings climbed 1.8 percent after a revised 0.3 percent drop in November that was initially reported as unchanged, the agency said today. The Bloomberg survey median called for a 2.3 percent gain. Demand for durable goods increased 4.3 percent, little changed from a 4.6 percent gain estimated last week, while non-durables dropped 0.3 percent on declines in petroleum and tobacco.
Housing has helped lead the economy out of every recession since 1950 except for the last one in 2007 to 2009, according to data compiled by Bloomberg. Homebuilding climbed 12 percent in 2012, the first annual increase since 2005. As Americans move into new homes, they buy appliances and furniture, giving growth an added lift. Construction-equipment makers to paint- and building-materials businesses also benefit.
There are "pretty substantial" ancillary effects from housing, said James Bullard, president of the Federal Reserve Bank of St. Louis.
"It's not just the guys that are putting the roof on the house," he said in an interview in Washington on Feb. 1. "It's the transportation associated with it, it's the Realtor business, the lending business, all kinds of other businesses.
"The psychology has shifted," he added. "Good things are happening."