Surge in Housing Demand Boosts Growth Prospects.(Brief Article)

Mr. Raines is the chairman and CEO of Fannie Mae. This viewpoint is an excerpt from a speech he made at the National Press Club in Washington, D.C.

The recession hit almost every industry hard. Except for housing. Home construction actually increased by 4%. Home sales were up nearly 6%. And mortgage debt outstanding rose by 10%. And right when it was needed most, the refinancing boom pumped $80 billion into consumers' pockets, an average of $23,000 per homeowner who refinanced. This extra wealth helped to lift consumer confidence. And with this wealth, households reduced their revolving debt and also increased their spending by $50 billion, which was more than the tax rebate.

The boost from housing helps to explain why - even though key industries suffered double-digit declines - the overall economy fell by only a half a percentage point last year. Without the boost from housing, it's clear that the recession would have started sooner, lasted longer, and been more severe.

We estimate, for example, that if housing had declined as it usually does in a recession, the decline in GDP would have been five times worse. And 350,000 more Americans would have lost their jobs.

Why is housing so economically powerful?

First, housing is the No. 1 consumer product in America.

Families spend a quarter of their income - an average of $16,000 per household per year - on buying, fixing, furnishing and maintaining their homes. If they buy a new home, they spend almost $9,000 in the first year on furniture, appliances, decorations, and other improvements. If they move into an older home, they'll still spend $6,500 in the first year making it better.