May 25th, 2015
by Philadelphia Fed
Homebuilding is typically a casualty of economic downturns, but it is also true that most economic recoveries are built upon a resumption of pounding hammers and buzzing blades. Not so with the recovery from the Great Recession. After new home construction slowed dramatically in the recession, the sector not only failed to lead the overall recovery as usual but significantly lagged it.
Even now that overall economic growth and employment have largely resumed growing solidly, homebuilding and construction employment levels remain far below normal in Pennsylvania, New Jersey, and Delaware as well as in the nation. Why? What was different this time? The housing boom and bust significantly altered key dynamics in the housing sector that have yet to resolve. Mortgage delinquencies and foreclosures soared to their highest rates since at least the Great Depression, and though they've fallen somewhat, they remain atypically high. The housing bust and the severe recession it spawned also reduced the financial wherewithal of many individuals and families, changing attitudes and behaviors enough to lower household formation rates and create a greater propensity to rent rather than own.