In yet another positive sign for the economy, housing starts have begun to surge. In September, housing starts increased by about 15%, or 872,000 units. That is the highest level in over four years. Housing problems was one of the major problems that caused the Great Recession, and it has just recently begun to climb out of the enormous hole it had fallen into. The housing sector is a major indicator for the larger economy.
The housing news follows promising signs across the spectrum. Unemployment has been steadily falling all year. In September, the unemployment rate fell to 7.8%, the lowest level since January of 2009. The stock market has been moving upward for the past few years, climbing to highs not seen since before the recession. Consumer confidence has also begun to move upwards.
Housing is still far below its peak, which was achieved in 2006. Right now, housing starts are only at about 60% of the level of those highs. However, the 2006 numbers were inflated by weak lending standards that helped facilitate the financial crisis, so a one to one comparison is not exactly fair.
According to economists, each new home built creates about three new jobs. The battered construction field gets a major boost from housing, with many of its jobs helping to fuel middle income families. With such a large number of housing starts, millions of jobs are supported. Each new job creates another consumer and tax payer, which greatly benefits the overall economy.
Housing is likely to continue to improve in the coming months. The Federal Reserve recently announced a program to continually buy mortgage backed securities until the employment situation straightens itself out. The Fed has kept borrowing costs low in an effort to combat a tough credit market. Mortgage rates are currently at all time lows.
One thing we must be wary of is repeating the same mistake that caused the Great Recession. Mortgage backed securities and financial instruments related to them were one of the main factors leading to the recession. The securities were structurally weak because banks handed out loans to people that could not afford them. Lending standards were lowered to fuel the mortgage backed security market. You can’t build something on a weak foundation. Eventually the entire house of cards collapsed. We would be wise not to let history repeat itself.