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Housing Recovery Picks Up Steam despite Persistent Headwinds

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Assuming the government meets these challenges, Zandi cited three reasons for optimism moving forward. First, the fiscal drag that is weighing heavily on the economy in the form of tax increases and government spending cuts that are now being implemented will continue to fade in the coming years. This fiscal drag will shave 1.5 percent off of GDP growth this year, about 0.7 percent next year and gradually fall to zero by 2016, he said.

Second, Zandi noted that the “private economy has done a marvelous job of reducing leverage and getting their balance sheets in order. American companies are in very good shape and they will do well going forward, with continued strong export growth.

That will be a strong source of economic growth for a long time to come.”

Finally, Zandi said that demographics make a compelling argument for a strengthening housing market.

“In the current housing market, supply is running around 950,000 annual units,” he said. “In a normal economy, we should be producing 1.7 million units. That’s a big difference. We’ve already made a lot of progress in working off excess inventory. We won’t get housing construction up to 1.7 million quickly. The big problem in the next five years won’t be too much housing, but too little housing.”

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