Housing Finally Contributing to GDP

0 comments

Posted on 1st November 2012 by Grand_Homes in Homebuyer Tips |Homeowner Tips |Real Estate News

Business, Grand Homes, Real Estate, Texas Economy, Texas Real Estate, U.S. Economy

Friday’s report on U.S. economic growth confirms two emerging trends about the long-ailing housing sector: It is finally delivering a lift to the economy, but it is not delivering anywhere near the kind of boost that it traditionally has during a period of economic expansion.

Housing has now contributed positively to the nation’s gross domestic product in six straight quarters, which hasn’t happened since the housing bubble burst in 2006.

Residential fixed investment accounted for 0.33 percentage point growth in GDP during the third quarter, up from 0.19 percentage point in the second quarter and 0.03 percentage point in the year-ago quarter, the Commerce Department said on Friday.

Housing contributes to the economy in two key ways: the direct contribution to growth through home construction and improvements, and real-estate broker commissions, which is captured in the “residential investment” figures reported by Commerce.

But it also shapes consumer spending, through the so-called “wealth effect” (people may spend more when their homes rise in value because they feel richer, just as they might when stocks rise). Homeowners can also tap into the equity of their homes by taking out a home equity mortgage or through cash-out refinancing.

Jan Hatzius, the chief economist at Goldman Sachs Group , published a report last week quantifying the impact of all three of these contributors—residential investment, the wealth effect, and mortgage-equity withdrawal—on economic growth.

While residential investment peaked in mid-2004, housing’s contribution to the economy didn’t peak until later in 2005 thanks to the wealth effect and mortgage-equity withdrawal. Home prices, after all, kept rising until mid-2006 in much of the country.

So far this year, residential investment has contributed positively to growth, but the wealth effect hasn’t yet, largely because prices have only recently begun to turn positive. “However, the wealth effect is also starting to contribute to the improvement as the swing from continued house-price declines in 2010-2011 to house price gains in 2012 gradually makes itself felt in consumption,” wrote Mr. Hatzius.

Housing’s current contribution of around one-quarter of a percentage point to GDP should rise to around one half of one point next year, according to Mr. Hatzius. This is far below the full percentage point that it delivered between 2003 and 2005. “It is important to keep the improvement in perspective. Housing is likely to remain less important from a macroeconomic perspective than in the prior cycle,” he wrote.

Article By: Nick Timiraos, The Wall STreet Journal,  WSJBLOGS
See original article here.
0saves
If you enjoyed this post, please consider leaving a comment or subscribing to the RSS feed to have future articles delivered to your feed reader.

No comments yet.

Leave a comment

WordPress SEO fine-tune by Meta SEO Pack from Poradnik Webmastera