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Working Papers

Housing’s Virtuous Cycle

Working paper #434
Mark M.Zandi

The housing and mortgage markets have played an unprecedented role in the U.S. economy recovery from the recession of 2003. That the strong housing and mortgage markets cushioned the severity of the economy’s difficulties and played such an important role in the recovery is without precedent. The counter-cyclical behavior of housing markets is due to a number of unique factors. Chief among these is the maturation of the housing finance system, which has integrated the nation’s housing and mortgage markets with global capital markets through the large and rapidly growing mortgage backed securities market. In all likelihood, while housing and mortgage markets will not play an identical counter-cyclical role in future business cycles, they will no longer perform the damaging pro-cyclical role they have in the past. This article shows how the housing finance system in its current form has been the key to the powerful positive effect that housing and mortgage markets have had on the overall economy.

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