Home stretch: A blueprint for global recovery?

BOSTON — The U.S. housing market has been at the center of the global economic crisis for much of the past two years.

America’s property bubble, you’ll recall, created the pool of cash that eventually morphed into a fiendish universe of toxic assets. When these complex financial instruments blew up on Wall Street they threatened to ruin the U.S. financial system, while knocking flat the world’s largest economy and damaging others around the rest of the planet, too.

So it’s fun to see housing back in the headlines this week, particularly when the news is coming from the U.S. and China, the two most important economies in the world.

We learned Friday that the construction of new homes in the U.S. jumped 1.6 percent in March to the highest level in more than a year. Construction of new homes is up more than 20 percent from a year ago.

Building permits — a sign of future construction — rose 7.5 percent in March to a 17-month high, while permits for single-family homes climbed 5.6 percent.

All of this is better than economists were expecting. All of this is good news.

“The surge in single-family permits should be regarded as a very positive sign that the recovery is gaining some momentum even within the weakest sector of the economy,” Alan Ruskin of RBS Securities told Reuters.

One positive monthy report doesn’t make a trend, of course. Nor does it point to a recovery in housing prices — particularly while foreclosures remain high. But any kind of housing recovery is a happy development for the U.S. economy.

So hooray. And phew.

Now tilt the planet on its axis to find booming, red-hot China, where housing was also a focus this week.

On Tuesday, we learned that China’s economy surged 11.9 percent in the first quarter, its strongest showing in three years. But the government isn’t exactly celebrating.

”The current economic situation is still extremely complex and we still face many problems in the process of recovery,” Li Xiaochao, Beijing’s statistics bureau spokesman, told reporters.

That’s because one of those complexities is the potential bubble in Chinese real estate. The government said Wednesday that March housing prices were up 11.7 percent from a year ago in 70 major cities.

They’re even higher in other places across China, particularly in Shanghai and Beijing, where a government report earlier this month concluded that prices in those markets had "clearly deviated from the normal return on investment for a rational investor."

So to slow gains and curb speculation, Beijing this week announced a number of new measures.

It is upping the required down payment on purchases of second homes from 40 percent to 50 percent, while boosting the minimum mortgage rate for those homes. It’s also raising the down payment requirement of larger homes from 20 percent to 30 percent.

Property stocks in China plummeted on the news, as some analysts said Beijing is finally getting serious about addressing the country’s housing bubble.

"These tightening measures mark the true turning point of property-related policies and the property sector of this cycle," Ting Lu, a Merrill Lynch economist in Hong Kong wrote in a research report.

So hooray. And phew.

Taken together, the developments in these two economic powerhouses may prove to be an important moment for the rebounding global economy.

Here’s why.

The U.S. can’t fully recover without the positive knock-on effects that housing adds to gross domestic product: investment and increased consumer spending. That’s because people, even in a post-bubble economy, tend to fill those homes with furniture, appliances and all the other necessities of daily life. And spending is an important part of economic growth.

China, meanwhile, can’t afford the economic, political and social dislocation that would accompany a sudden and severe real estate slump.

So as housing was as the center of the global economic nightmare, it is now moving toward a central role in the global economic recovery.

Of course, plenty of risks remain. There are good reasons to worry about continued weakness in the U.S. commercial real estate market. Consumer confidence remains weak. And, of course, unemployment needs to drop significantly before the American economy can truly recover.

But an important question remains: can housing add warmth to a decidedly tepid economic recovery?

The question facing China is different, but no less urgent: will its property market prove to be a dangerous bubble, or one with "Chinese characteristics" that somehow defies economic history?

It may take a world of housing contractors, from Chicago to Chengdu, to know these answers for sure.