Housing Remains a Heavy Drag on the Economy

The housing contraction continues to exact a heavy toll on the U.S. economy, according to the National Association of Home Builders. Residential fixed investment contracted at a 24 percent annual rate in the final quarter of 2007, knocking off more than a percentage point from the GDP growth rate. Also, associated setbacks in related parts of the economy, such as mortgage lending, have compounded housing’s negative economic impacts.

Downward momentum in home sales and housing starts through the end of 2007 strongly suggest another heavy hit to the economy from housing in the first quarter of 2008.

Furthermore, recent data on housing starts and building permits for January show further substantial declines in these measures, particularly in the single-family sector.

These patterns virtually guarantee another large deduction from GDP growth in the first quarter as the relentless housing contraction pushes the U.S. economy to the brink of recession.