Housing is in a leading position, “where it has belonged all along.”

As the t-shirt says, “Unless you’re the lead dog, the view never changes.” It’s a slogan that recalls another century’s chief mode of transportation across the Alaskan winterscape. Not that dogsleds are all that far gone; as recently as World War II, they were integral to wilderness patrols that helped confine the Japanese to the Aleutian Islands. Modern-day Alaska’s most celebrated event is the annual Iditarod Dogsled Race, a grueling ordeal for human being and dog alike, over a 10 day, 1,200 mile course. Only the hardiest need apply, and every “musher” appreciates the leadership role assumed by the lead dog, who, by the way, richly deserves the view he or she has earned.

Until recently, the American housing industry had become accustomed to the less desirable view, somewhere in the pack among the rest of the pooches pulling the economy’s dogsled. The less fragmented, more easily reported on industries such as auto, banking and others attracted more attention than housing. Today, however, housing finds itself in a leading position, where it has belonged all along. Unlike the rest of the nation’s investors, homebuyers are turning out in droves to put their money into housing, thanks to the record low interest rates.

Few industries have as much positive cascading effect on the economy as housing. Housing development benefits local governments, infrastructure construction workers, materials suppliers, housing construction workers, appliance manufacturers, and all the other contributors to the homebuying and homebuilding community. When new developments are lauched, infrastructure workers benefit from building streets, shopping centers, public schools, and other community facilities. Materials suppliers provide all the concrete, bricks, nails, lumber, wiring required for the infrastructure, as well as for the homes themselves, and producing those materials employs millions of people within their respective industries. Housing construction workers spend two or more years on the average planned development, fueling the local economy with their own buying power. Local tax bases are enhanced by the influx of new people who buy the homes, both with property taxes and other levies. And retailers near the housing development establish themselves to serve the new community, drawing workers from all over the region. Appliances are typically manufactured well away from the developments, but employ thousands in their factories. Of course, they also must buy their materials, and those suppliers need raw materials to fabricate usable parts for the manufacturers to assemble. All of those people spend their incomes in their local economies, benefiting suppliers, manufacturers, and retailers in their own right.

The cascading effect goes on and on, all over the country, with the economy as a whole, the recipient of the benefits. Once established, the community does not stand still. If it proves desirable, it inevitably grows, freshening the cycle.

Now, consider the financial implications of all those loans needed to purchase, to add on, to finance the growth of families, to provide educations and automobiles as time goes by, and to refinance when the time is right, like now. Once more, hundreds of thousands of people in the housing finance industry are affected, and in turn make their own contributions to the system.

Housing, then, is arguably the most important sector within the GDP, and is finally getting its long overdue recognition. In the face of other downturns in the economy and near-bear Wall Street markets, housing continues its bullish ways. Despite a major downturn in economic growth characterized as the steepest decline since World War II, housing has defied all trends.

The reason, of course, is that housing depends on financing, and financing is throttled primarily by The Fed. So each time the Fed lowers rates, there is a greater chance of spurring growth in the housing sector, more than in others, due to the impact the cuts have on long-term interest rates. Each time mortgage rates tick down, thousands more people qualify for loans, fueling the process. When rates moved from 7.5% to 7.0%, for example, almost two million more people qualified to own homes.

The impact of increased housing activity is not terribly immediate, and therein lies the rub: Mr. Greenspan would prefer people run out and buy cars, major appliances and other goods, enabling consumption to be measured with greater immediacy. Still, the salubrious effects of a strengthening housing market are far greater in the long run, a fact more experts are starting to recognize. As National Association of Home Builders president Bruce Smith said, “Amid a slew of negative indicators, such as industrial production slumping for the fifth consecutive month in February, the severe decline in consumer confidence and (the most recent) stock market plunge, housing stands out as a welcome bright spot in the economy.” This positive attention on housing is giving new and welcome energy to NAHB–supported legislation.

What are the chances of housing’s surviving the current economic slowdown? So far, so good. According to Brown Bros. Harriman economist Lara Rhame, “With interest rates still coming down it is hard to see what could put a dent in the housing market at this point. Housing has been the one consistently positive thing in the economy, and I don’t see that changing any time soon.” Despite the fall of economic growth, unemployment is at the lowest point in a generation. People are confident about finding and keeping jobs, and with low rates easily obtainable, feel free to take advantage of low payments. Even though the economy has seen better days, America is still continuing to grow as a nation of owners.

For people in the lending business, it is a great time to be alive. Not only have low rates kicked off a new refinance boom, but new homebuyers are showing up in great numbers needing financing. In addition, so many new products are available that more people than ever qualify for loans, whether prime or subprime. Competition this time is nothing in terms of numbers compared to the end of the last boom, the intervening dry spell having weeded out the non-survivors, leaving the field more open for the committed professionals than ever before.

All in all, it’s good being the lead dog, even when you’re dragging the weight of the world behind you. Housing can handle it – particularly with all of us pulling together.

James L. Hennessy

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