The Great Housing Hangover

March 8, 2014
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Just how bad was the housing binge from 2002 to 2006? Here is retail spending on furniture, appliances, and home improvement from 2006 to 2013. The lines are indexed to 2006, so for every year, if you take the point for that year and subtract 100 you get the percentage change from 2006 to that year.

It is stunning. Nominal retail spending on furniture, appliances, and home improvement remains below its 2006 level in 2013, 7 full years later. Remember that this is nominal spending, so if you adjust for inflation the gap is even larger!

houseofdebt_20140308_1

A natural question is whether 2006 represents a useful benchmark. Perhaps spending on housing-related goods in 2006 was artificially inflated by the housing boom, and is therefore not a useful reference point? Or alternatively, perhaps 2006 spending was what we would expect from a normally functioning economy?

The truth is in between. Spending on housing-related goods was no doubt fueled by the unsustainable housing boom. But the correction is likely also too extreme — different policy actions during the Great Recession likely could have helped soften the blow.

What policies? You will have to wait until our book comes out in May!

*note on the blog posts — they are being posted under Amir’s name right now but they are co-authored by the both of us.

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One Response to The Great Housing Hangover

  1. spencer on March 15, 2014 at 10:43 ami

    I’ve compared housing starts to household formation.

    In the 1960s-70s the baby boomers growing up lead to rapid household formation growth that justified over 2 million annual housing starts.

    But in the 1990s household formation did not justify 2 million additions to the housing stocks.

    Only in 2012 did household formation exceed housing starts so that the excess inventories could be drawn down.

    But now, household formation still justifies starts of well under 1.5 million.