

In the following video, Mayer explains the profound effect the housing market has on the general economic recovery and takes a look at psychological triggers that may or may not work to get people buying again.

Full transcript below.

David Hanson: The formation is the demand side, and housing starts ...

Chris Mayer: Is the supply side, yes.

Hanson: Which we've been trending below what we're going to need to keep up with the historical rate.

Mayer: Yes. Housing starts, if you look at the numbers -- and this is one of the things that we talked about this morning on our panel -- the Joint Center of Housing at Harvard tracks some of the data on the construction and household formation side.

I think those are concerns at the moment, because ordinarily, coming out of a recession, you would have seen the housing market just completely take off and pull the economy out.

Obviously, this recession looks nothing like what the recovery of a typical recession would be, because housing has been so slow. You can easily account for 1%-2% of GDP slower recovery, just based on housing not having done what it normally does.

I pay attention to that, but to my mind, the big things are looking at when we start forming households. That's going to be when we start demanding more housing. That's when prices start coming up to construction costs.

But where they recover, I think a bad benchmark is where they were in 2005 is where they'd expect -- if you're in San Francisco, I believe they'll be above that. If you're in New York or you're in Boston, history says they're going to exceed that level.

If you're in Las Vegas or Phoenix or Miami, history does not say we're going to exceed those levels any time in the next decade.

Hanson: You talked about people staying at their parents' house longer, delaying things. One of the things that some people point to is, rising rates will get people off the sidelines and that's going to keep us going. Is there evidence to support that rising rates really do serve as a motivation for people to come into the market?

Mayer: It's certainly ... I wouldn't even call it an urban legend.

Hanson: Just a myth?

Mayer: Real estate brokers and mortgage brokers both say it. There's probably something to that view. I haven't ever seen a study on that.

Obviously it's not ... it can't be a long-run thing, because obviously rising rates make housing less affordable and they're going to push down prices. But in the short run, we all understand people need motivations to do things.

Certainly your listeners understand that on the investment side, that there are triggers that push people into things that aren't necessarily ... you just don't know when the low is going to hit, so the people who are waiting for mortgage rates just to go down a little lower and figured they would never go up again, they went up 100 basis points in a pretty short period of time.
