One pervasive economic misconception is that consumption drives growth. Consumption matters, to be sure, but not as much as investment. After all, to consume you must first produce something to exchange.

For this reason, we follow investment trends. We are particularly encouraged by the rising trend in residential fixed investment. After hitting a multi-year low in late 2010, residential fixed investment has trended higher. The good news is that investment has a long way to go before reaching historical norms. That means the market still holds a lot of potential. 

Housing, as we mention above, has a cascading effect. Housing investment influences many other businesses. As housing activity increases, activity in other business sectors will increase as well: and voilà , more economic growth!

More economic growth, in turn, lowers risk aversion. If economic growth materializes as we expect, we should see more accommodating regulation and more accommodating lending in 2013. At least that's the way the market worked in the past.

There is one slight negative in our scenario. Stronger economic growth will also lead to rising home prices and higher lending rates. This is a point worth driving home to clients. Last year, we saw a plethora of housing bargains. This year we see bargains, just fewer of them. This time next year, we expect to see fewer bargains still.

Courtesy of Jessica Regan.

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