This stands in sharp contrast to the important role that the housing sector has typically played in propelling economic recoveries (chart 22). During a downturn, reduced spending on durable goods – including housing – generates pent-up demand, which in itself helps sow the seeds of recovery. Once the cycle bottoms out, improving economic prospects and diminishing uncertainty usually help unleash this pent-up demand.
This upward demand pressure is often augmented by lower interest rates, to which housing demand is typically quite responsive. Moreover, spillovers from increased housing demand – such as wealth effects from higher house prices, purchases of complementary goods such as furniture and appliances, as well as strengthening bank balance sheets – have, in the past, provided a powerful additional impetus to the recovery.