The myth that housing markets must improve in advance of full recovery

Not so, as explained by Harvard Professor Edward Glaeser. From a Bloomberg commentary:

Housing prices stayed static for six long years after 1991, and in real terms, housing prices were no higher in 1998 than they were in 1991. Yet real GDP grew an impressive 28 percent between 1991 and 1998. It's a myth that the housing market must recover before the larger economy can surge. The one sector that will not boom until housing markets come back is construction. From 2003 to 2008, the U.S. added 9.3 million units to its housing stock, and the number of vacant homes increased by 3.4 million. Construction can only come back when we work through that excess housing inventory, and that process has been slow.

Glaeser sees no reason to believe that the current period of near stagnation in home prices will end any sooner than in the 1990s (Socal's struggles lasted longer than the nation as a whole). But a low and stable housing market is not altogether a bad thing - it's certainly preferable to boom and bust cycles. "My greatest hope," he writes, "is that prospective buyers have learned the lesson of the past decade: Housing prices go down as well as up. The right reason to buy a home is not as an investment, but as a place to live a fulfilling life."

Chart: Dataquick