New Home Construction Is Weak and Won't Recovery Until 2014 If Things Go Well

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A study by the San Francisco Fed shows that new home construction is at the lowest level in decades. It concludes that construction will not return to its normal rate until 2014. If their assumption about the foreclosure rate is too optimistic, the return to normality will take much longer. Government should be doing something about limiting foreclosures if it wants the economy to recover sooner.

New home construction is more important to the economy than most people recognize. With the exception of the dot.com boom under Clinton, new home construction led the economy out of all of our previous recessions. The recessions were triggered by increases in the Fed interest rates which curtailed new home construction because the market is interest rate sensitive. The Fed lowered interest rates to end the recessions by stimulating new home construction.