The Great Housing Hangover

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!

Housing-related Spending Hangover

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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