Housing is a significant contributor to the U.S. economy, accounting for a substantial portion of the gross domestic product (GDP). Its impact is multifaceted, encompassing both residential investment and consumption spending on housing services.
Key Facts
- Housing’s combined contribution to GDP generally averages 15-18%.
- Residential investment, which includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes, and brokers’ fees, accounts for roughly 3-5% of GDP.
- Residential housing market activity contributes about 5% to the US gross domestic product (GDP) each year.
- Investors should pay attention to economic indicators related to housing and construction as a window into the broader economy.
- There are various economic indicators related to the housing market that can provide insights into the state of the housing market, including construction spending, residential construction, home sales, state-level home sales reports, new home sales, pending sales, NAHB’s Housing Market Index, and regional price indices.
Residential Investment
Residential investment, which includes the construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes, and brokers’ fees, typically constitutes around 3-5% of GDP. This investment is crucial for the overall health of the economy, as it stimulates job creation, boosts consumer spending, and contributes to economic growth.
Consumption Spending on Housing Services
Consumption spending on housing services, which includes gross rents and utilities paid by renters, as well as owners’ imputed rents and utility payments, comprises a significant portion of GDP, typically ranging from 12-13%. This spending reflects the value that households place on adequate and comfortable living spaces.
Combined Contribution to GDP
The combined contribution of housing to GDP generally averages between 15% and 18%. This substantial impact underscores the importance of the housing market in driving economic activity and overall prosperity.
Economic Indicators Related to Housing
To gain insights into the state of the housing market, investors and analysts monitor various economic indicators, including:
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Construction Spending
This indicator measures the value of new construction activity, providing insights into the demand for new housing and the overall health of the construction industry.
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Residential Construction
This indicator tracks the number of new housing units authorized by building permits and the number of housing starts, offering a gauge of future construction activity.
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Home Sales
Existing home sales data provides information on the number of previously owned homes sold, reflecting the level of demand in the housing market.
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State-level Home Sales Reports
These reports offer insights into housing market trends in specific states or regions, highlighting local variations in market conditions.
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New Home Sales
This indicator measures the number of new homes sold, providing insights into the demand for new construction and the overall health of the housing market.
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Pending Sales
This index tracks the number of signed contracts for the purchase of existing homes, offering a glimpse into future home sales and market activity.
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NAHB’s Housing Market Index
This index gauges the confidence of home builders in the single-family housing market, providing insights into their expectations for future sales and construction activity.
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Regional Price Indices
These indices track changes in home prices in different regions, offering insights into market trends and affordability.
By monitoring these economic indicators, investors and analysts can gain a comprehensive understanding of the state of the housing market, identify potential opportunities, and make informed investment decisions.
Sources
- National Association of Home Builders: https://www.nahb.org/news-and-economics/housing-economics/housings-economic-impact/housings-contribution-to-gross-domestic-product
- Investopedia: https://www.investopedia.com/articles/personal-finance/033015/top-us-housing-market-indicators.asp
- Federal Reserve Economic Data: https://fred.stlouisfed.org/tags/series?t=gdp%3Bhousing%3Bpercent
FAQs
What is the combined contribution of housing to the U.S. GDP?
Housing’s combined contribution to GDP generally averages between 15% and 18%.
What are the two main components of housing’s contribution to GDP?
Residential investment and consumption spending on housing services.
What is the typical range of residential investment’s contribution to GDP?
Residential investment typically accounts for around 3-5% of GDP.
What is the typical range of consumption spending on housing services’ contribution to GDP?
Consumption spending on housing services typically comprises 12-13% of GDP.
What economic indicators are commonly used to gauge the state of the housing market?
Economic indicators used to assess the housing market include construction spending, residential construction, home sales, state-level home sales reports, new home sales, pending sales, NAHB’s Housing Market Index, and regional price indices.
Why is monitoring economic indicators related to housing important?
Monitoring economic indicators related to housing is important for investors and analysts to gain insights into the state of the housing market, identify potential opportunities, and make informed investment decisions.
How does residential investment contribute to economic growth?
Residential investment stimulates job creation, boosts consumer spending, and contributes to overall economic growth.
What is the significance of consumption spending on housing services in the U.S. economy?
Consumption spending on housing services reflects the value that households place on adequate and comfortable living spaces, contributing to the overall stability and prosperity of the economy.