Ataman Ozyildirim is an economist and director of business cycles and growth research at The Conference Board. He joined The Conference Board in 1999 as part of the Global Business Cycle Indicators Program that produces The Conference Board Leading Economic Index for the United States, the Euro Area, China, and eight other countries. In addition to leading The Conference Board research program on business cycles and developing business cycle indexes for emerging economies, he also manages the research program in productivity, innovation and competitiveness, as well as on the annual Global Economic Outlook. Ozyildirim is an expert on measurement, forecasting, and the analysis of business cycles. His research interests span applied macroeconomics, forecasting, forecast evaluation, international economics, and development economics.
The GDP exceeded expectations for Q2 with an annual growth rate of 3.9 percent. Will this translate to increased health for the housing market and why?
Consumers have been the main driving force in the improving performance of the U.S. economy which seems on track for about 2.5 percent average growth over the next few quarters although the third quarter GDP growth could be as low as a 1.5 percent annual rate. And, consumers have been benefiting from the improvement in the labor market. Both of those factors have helped build a little momentum in the housing market. In turn, housing then reinforces the gains in the labor market.
Much has been made of the economic progress the country has made in the last year as well as the progress in housing. What role has housing played in the economic progress?
Housing should also continue to provide some fuel for consumer spending, and therefore the overall economy. The recent pickup in household formation rate also points to a more sustainable improvement in housing which helps support the overall economic growth. This is one of the strongest areas of the economy with a lot of pent-up demand. According to the latest numbers, housing starts are up, with upward revisions. Housing permits are trailing housing starts so there might be some volatility going forward, but housing market is finally catching up to the labor market in terms of showing steady growth although the labor market is beginning to moderate. The single family housing market seems to be heating up, despite some potential volatility. Construction companies and workers are busy while home prices and mortgage rates remain favorable. In the overall economy, if wage gains pick up, housing could get another boost, but the moderation in the number of new jobs could prove to be a speed bump—hopefully, not a road block.
Why, in your opinion, is this housing recovery more sustainable than the “bubble” from 2005 to 2008?
I like that question a lot. I think what we’re seeing is a cyclical recovery due to the improvement in household incomes and finances, signs of household formation returning, and pent-up demand for housing. The improvement seems to be going hand in hand with the moderate improvement in the overall economy. Finally, the financial conditions that led to the “bubble” are arguably a little more restrained this time around.