Housing And The Monetary Transmission Mechanism

The housing market seems to be on everybody's mind these days, and for good reason: Developments in the housing market have a major effect on economic activity. For example, as single-family housing starts in the United States dropped from their peak of 1.84 million units in January 2006 to the current level of 1.15 million units, the accompanying contraction in residential investment is estimated to have lowered the growth of gross domestic product over the last four quarters by a full percentage point. The big gains in housing prices one has seen here and in many other countries have raised concerns about what might happen to economic activity if those price gains are reversed.