The hangover from the housing bubble’s collapse continues to plague some investors, and at glance, the numbers still aren’t glowing:
To cap it all off, looking forward, despite low interest rates and improving delinquency trends, longer-term supply and demand imbalances remain—and will likely take time to work through.
We won’t downplay the concern for those directly engaged in the real estate industry (construction workers have been hard hit in the downturn), but one has to be careful about extrapolating housing’s influence to be larger than it really is. Yes, it’s true housing played a role in 2008’s recession—it was a material contributor to the backdrop, but not the principal driver. Rather, it was principally the impact of FAS 157 on banks’ balance sheets and uneven government actions that largely drove the panic.
Looking forward, a protracted housing malaise isn’t necessarily a factor that has the power to stymie the ongoing equity bull market or continued economic expansion (as we’ve said before). For stocks, it’s underappreciated, material fundamental developments that matter most in the longer term—and there are likely few investors who aren’t aware housing’s been weak. Economically, the US today is bigger than it was at its pre-recession peak. And it recovered without the benefit of a strong housing market—in fact, with ongoing housing weakness. How did that happen? While a housing recovery would provide a nice incremental economic tailwind, it has a far smaller impact on the economy than many believe: In Q1 2011 housing accounted for a mere 2.2% of US GDP.
nd exports—have a much larger impact. Perhaps most importantly, the powerful structural trends driving global economic growth remain intact and seem poised to continue serving as the foundation for US expansion.
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