Think of housing as capital and think of the housing capital / labour employment ratio it partially represents over the longer term. Migration will alter the ratio, but the relationship over time could be rather stable in the sense that it self corrects.
What we witness now is an automatic correction mechanism linking real demand and real supply for housing dependent on inward and outward migration and rising real disposable incomes. Real savings ratios will mitigate results, but be subject to self correcting mechanisms over the longer term. Thus if real savings do not improve employment will definitely fall and unemployment will eat up real resources pushing the economy onto a lower long term growth path.
If you thrown in monetary imbalance as a temporary phenomenon, it could exaggerate explosion in demand or implosion.
I don't think five years is correct. I would put it much longer and possibly as much as twenty, which would be really punishing. Why so long? Habits of excess don't change because of persistent consumption patterns and long term income spending relationships.
Lowering interest rates is bad for life cycle economics since it begs a future income that won't be there. Savings come from higher disposable incomes not lower interest rates which do nothing but increase the wastefulness of stock market and commodity price speculation. Yes the business cycle does exist and it is stupid to deny it by assuming it away.
NOT!
 The Economist (@TheEconomist)23/07/2011 05:37 AM How to survive a five-year slump: The US housing market is at an historic low. Eventually, it will bounce back http://econ.st/rfXGxM |