The housing market may turn out to be a big factor in how quickly the U.S. economy recovers from the effects of COVID-19, according to Berenberg Capital Markets.
“We expect housing activity to be a key contributor to the recovery from the pandemic,” said Mickey Levy, Berenberg’s Chief Economist for the U.S. Americas and Asia and U.S. Economist Roiana Reid.
They noted that housing and construction have led most previous recoveries after a recession, with the exception of the 2008 to 2009 financial crisis. The debt-financed housing bubble which precipitated that crisis involved over-building causing record high unsold home inventory.
“In sharp contrast, as we have emphasized consistently, home sales in 2018 to2019 were constrained by insufficient supply; now, the inventory of unsold homes stands at an all-time low. This led to significant increases in housing starts,” the economists said in a market report.
They said that strong rebounds in new and existing home sales followed all recessions except for the 2008 to 2009 crises.
“In addition to the value of new construction, a sizable portion of ‘residential investment’ in the GDP accounts is home improvements,” Levy and Reid said. “The combination of new construction and home improvements boost demand for a wide array of supplies and workers, with a positive impact on many affiliated industries.”
They added that several states consider construction to be an “essential” business, allowing construction projects to proceed through stay-at-home orders.
“Importantly, government leaders including the Fed fully understand that, in order for a healthy economic recovery to be sustained, housing must do well,” Levy and Reid said. “Accordingly, government fiscal and monetary policies will support housing in a variety of ways. Housing activity will be on a lower path after this disruption, but it will resume growth.”
Rating agencies have weighed in on specific housing sectors.
Moody’s Investors Service said in a recent report that state and local housing finance agencies have strong financial and positions that will mitigate short-term cash-flow disruptions related to the coronavirus. It kept the sector’s outlook at stable for 2020.
S&P Global Ratings however, has revised the outlook to negative on all U.S. higher education privatized (off balance sheet) student housing projects in the wake of the COVID-19 pandemic and the uncertainties surrounding the ultimate economic fallout.
