Most Americans have nearly all their wealth tied up in their homes. That’s risky for them and for the economy as a whole, as we saw during the financial crisis. Housing doesn’t have the kind of spillover benefit that you get from investments in other areas, like research and development, or even infrastructure, and it’s an inherently unstable business, being at once cyclical and illiquid. When the economy is doing well, people pour more and more money into housing; when the economy is doing poorly, they stop. So, as a number of studies have found, the housing industry tends to amplify the economy’s ups and downs. Consider the housing bubble of recent memory: while it was inflating, the economy grew much faster than it otherwise would have. But, when the bubble burst, the downturn was incredibly severe.
James Surowiecki, “The Mortgage Mistake”, The New Yorker (12 January 2015), 24.