Rising home sales and prices are giving an economic boost to nearly all areas of the country, according to the Federal Reserve's Beige Book, the economic barometer that's published eight times per year. It attributes growth in 10 of 12 of the Fed's regional banking markets since mid-August to an improving housing market.
Bankrate's senior financial analyst Greg McBride says there is a strong correlation between housing and the economy. “The Great Recession was sparked by the downturn in housing, and the strength of the U.S. economy between 2004 and 2006 directly coincides with the housing boom," he notes. "While there is no single determinant of economic growth and consumer financial well-being, it is clear that a solid housing market is a key ingredient, much the way that avoiding turnovers and penalties are important ingredients to winning football games."
McBride says the largest asset for most people is a home, so their mood about the economy is often closely tethered to the direction of home-price movements. "Even if they own very little of their home, the leverage makes it such that any increase in home value has a pronounced impact on the ratio of what they own, relative to what they’ve invested."
As the housing market continues to slowly improve, McBride says he doesn't predict another boom like the one in 2005. "But just the fact that the market has stabilized and shown signs of growth is a boost for the consumer psyche and ultimately the broader economy."
Are you seeing signs of an improving housing market and economy in your area?
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