Housing and Monetary Policy

When you look back over the past half-century in the United States you see a remarkable secular change in the housing cycle. Most importantly, the volatility or average size of the fluctuations in residential construction declined. The change occurred in the early 1980s. For example, compare two periods, the first before the early 1980s and the second since the 1980s. In the earlier period the standard deviation of residential investment relative to trend was around 13 percent; in the later period it was 5 percent, and this includes the most recent fluctuation, which is much larger than the average since the early 1980s. Without the current cycle the reduction would be even larger.