Before the Great Recession, housing investment added an average of 1/2 percentage point to real GDP growth in the two years after each of the previous four recessions, considerably more than its contribution to growth at other times.5 During this recovery, in contrast, residential investment, on net, has contributed very little to growth since the recession ended.
The reasons are easy to understand, given the central role that housing played in the Great Recession. Following an extended boom in construction driven in large part by overly loose mortgage lending standards and unrealistic expectations for future home price increases, the housing market collapsed – sales and prices plunged and mortgage credit was sharply curtailed.