DEUTSCHE BANK: The Housing Market Is Telling Us The Rest Of The Economy Will Accelerate Within Months

Despite some nagging doubts that have remained over the U.S. housing market, consensus is that housing has turned the corner and is recovering.

In his latest note titled The Housing Recovery Is For Real, Deutsche Bank’s Joseph LaVorgna writes that the “residential housing market is in the very early stages of a durable recovery.”

LaVorgna says this recovery in housing is important because housing is what led the U.S. economy into a recession, and is part of the reason the recovery has been so slow. Moreover,  as “a leading indicator of underlying domestic demand,” any improvement in housing suggests that underlying domestic demand should improve as well. From LaVorgna:

“In the second chart below, we show the year-over-year growth rate in residential investment compared to the year-over-year growth rate in non-residential aggregated demand, which is defined as real GDP less inventories less residential investment. There is a four-quarter lead on the former relative to the latter.

Based on the recent behaviour of residential investment, underlying domestic demand should improve over the next year from what has been only very modest growth over the past several quarters. At minimum, the strength in residential construction suggests it is unlikely that underlying domestic demand will weaken further. This provides us with some comfort that the recent sub-par performance in the economy is not long lasting and that over time, domestic demand will strengthen, perhaps as concern over Europe fades a bit and the “fiscal cliff” is adequately dealt with.”

housing

Photo: Deutsche Bank

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