Karl Smith points out that the wild bubble in real estate prices wasn’t really matched by a crazy boom in construction:
There was a boom here, but a modest-sized one consistent with the kind of modest-sized increase in joblessness we were seeing in 2007. The real crash is the crash in prices. That led not to a crash in construction activity, but to a crash in personal spending outlays driven by the “wealth effect” and debt-overhang dynamics. All signs currently point to the idea that if unemployment went down a bit and a few more people had a bit more money in their pockets, then we’d find that we don’t have enough houses to match all the growth in population we’ve experienced. In other words, we’re not building homes because we have too many unemployed people, it’s not that we have such high unemployment because people are building too many homes.