Looking for growth – Will housing provide it? 

Recent data show that the housing market, while still a lower than historical norm at 2.2% of the economy, is on the mend.  Historically (from 1980-2007), the housing industry’s share of gross domestic product (a measurement of all goods and services produced in a year) averaged 4.5%.[1]  During the housing bubble leading up to 2007, housing accounted for up to 6% for several years.  It has taken almost 5 years to absorb the excess inventory accumulated during the boom years and home prices are finally rising.   Chart 1 shows that economists surveyed were too conservative in their estimates.

Data (numbers in thousands) Survey  Actual


Housing Starts Month vs prior Month



Housing Starts



Building Permits



Building Permits Month vs prior Month




New Home Sales



New Home Sales Month vs prior Month



Mortgage Applications          –


Housing starts, building permits and new home sales have been higher than expected as shown in the table.  Note the difference between “survey” and “actual”.  Source:  Bloomberg

Positive Implications of a resurgent housing sector – jobs, spending, and consumer spending! 

It is reasonable to expect that housing will revert to its average contribution to the economy and has finally started on that path.  How much is an additional 2.3% of our $15 trillion economy?  The Bipartisan Policy Center estimates that the missing 2.3% is roughly equal to $350 billion.  Moreover, the additional jobs that could be created to meet estimated housing needs is almost 3 million jobs.

All this bodes well for a stressed US economy that is seeing decreasing demand for exports due to a slowdown overseas.  Housing could make up for some of the lost revenue. Assuming the housing recovery is sustainable, the ripple through the economy should help stimulate demand for other goods.  And consumers will spend!

Chart 2 shows the upward trend for new home sales.  Source:  National Association of Home Builders

[1] Gross Domestic Product is equal to GDP = C + G + I + NX 

Note: Housing is part of “C


C” is equal to all private consumption, or consumer spending, in a nation’s economy

G” is the sum of government spending

I” is the sum of all the country’s businesses spending on capital

NX” is the nation’s total net exports, calculated as total exports minus total imports. (NX = Exports – Imports)


Read more at Investopedia


Print Friendly, PDF & Email