By Doug French, Contributing Editor
How important is housing to the American economy?
If a 2011 SMU paper entitled "Housing's Contribution to Gross Domestic Product (GDP)" is right, nothing moves the economic needle like housing. It accounts for 17% to 18% of GDP.
And don't forget that home buyers fill their homes with all manner of stuff—and that homeowners have more skin in insurance on what's likely to be their family's most important asset.
All claims to the contrary, the disappointing first-quarter housing numbers expose the Federal Reserve as impotent at influencing GDP's most important component.
The Fed: Housing's Best Friend
No wonder every modern Fed chairman has lowered rates to try to crank up housing activity, rationalizing that low rates make mortgage payments more affordable. Back when he was chair, Ben Bernanke wrote in the Washington Post, "Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance."
In her first public speech, new Fed Chair Janet Yellen said one of the benefits to keeping interest rates low is to "make homes more affordable and revive the housing market." Continue reading "Yellen's Wand Is Running Low on Magic"