The Housing Market Strongly Affects Overall Economy in 2014
As the National Association of Home Builders has strongly emphasized every time they are given a chance to speak before Congress, real estate and the housing market strong affects the overall economy, and the housing market is well on its way to proving that point during 2014. 3rd quarter numbers in 2014 showed that the housing market contributed 15.24% of the 5% growth of the GDP (Gross Domestic Product) during that period. A 5% growth was an unexpected surprise for most economists because the expected growth was just over 3%. However, with the housing market steadily recovering, and employment numbers on the rise, including the long-term unemployed once again entering the job market, the economy is experiencing better than expected growth numbers.
The housing market affects the overall economy’s GDP in 2 different ways. The “real” numbers are called RFI – Residential Fixed Investment. These numbers is the actual monetary gross profit or national income that results from home building and remodeling. The “boots on the ground” – builders, contractors, vendors, suppliers, and technicians such as electricians, plumbers, HVAC, carpenters, as well as remodelers and their contractors and vendors – produce actual income which in turn stimulates the economy in capitalistic spending. Employment will always drive an economy to recovery, and the construction industry provides a more than significant amount of employment and money flow. The total percentage of home building and remodeling that contributed to the 15.24% of the GDP was 3.08%. In a normal economy, this number is normally around 5%. Also, The RFI component reached a $500 billion annualized pace during the second quarter. This is the second highest quarterly total for RFI since the middle of 2008.
The second part of the housing market that makes up the rest of the percentage of the contribution to the GDP is called housing services. This includes the actual rent paid by renters, owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units) , and utilities. The percentage for housing services was 12.16% which is actually in the normal range for this percentage. The housing market’s two components normally makes up 17% – 18% of the GDP when the economy is stable. The 3rd quarter, 2014’s housing market numbers are strong indication of recovery with hopeful predictions from economists on the horizon for 2015.
