Sales of existing homes grew 59.5% between May 2020 and the recent peak of January 2022. It’s not just new housing that benefited after the initial wave of COVID-19. After a hiccup in early 2020, housing starts went up to a seasonally adjusted annual rate of over 1.8 million units by April 2022. This is also evident from housing starts, building permits, and home sales. 4 In fact, within business investment, only investment in equipment grew more than residential investment during this period. Between Q2 2020 and Q4 2021, real residential investment went up by 20.8%, far higher than the 13% rise in business investment during this period. Housing outshone most other parts of the economy after the initial impact of the pandemic. A surge in housing hit two key roadblocks in 2022 And unlike the subprime crisis, which was primarily due to lax rules in the mortgage market, the current downturn is more a cyclical one. While housing will feel the pressure of high mortgage rates this year, it will start recovering from 2024. Does this mean that housing is set for a repeat of the crisis in 2006–2009? We don’t think so. Starts are down by 23.4% from April 2022, while prices have eased. However, policy tightening by the Fed last year to counter inflation led to a rise in long-term borrowing rates-mortgage rates doubled last year. 3 With demand rising, home prices also went up. 2 Existing home sales, too, grew sharply during this period. After a sharp dent due to lockdowns and social distancing measures in March and April of 2020, housing starts picked up and grew 92.4% to their peak in April of last year. Housing had been a bright star for the economy since the pandemic’s initial impact.
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