When looking at gross domestic product, the broadest measure of the economy, housing plays a significant role. Housing’s share of GDP was 17.7% in the first quarter of 2021, the latest data available when writing this, which represents a near 14-year high. The housing market can therefore push up or pull down growth, and, right now, housing is a main driver of the expansion.
The housing sector was one of the quickest to rebound from the pandemic-induced recession and helped get hundreds of thousands of Americans back to work quickly. Residential construction is now operating with 35,200 more workers compared with pre-pandemic levels. The housing market contributes to the economy in four main stages: during planning and land development, throughout the actual construction of the home, at the point of sale, and upon moving in.
Stage 1: Planning and land development. The scouting, purchasing, and developing of land requires a lot of time, money, and insight from different specialists, including land brokers, civil engineers, lawyers, city officials, developers, and consultants.
Stage 2: Construction of the home. Getting the finished lot sold and built also touches a wide array of specialties. These jobs include construction workers and subcontractors, architects, designers, a sales team, and inspectors.
Stage 3: Point of sale. During the sale or purchase of a home, the consumer is working with a collection of trades and experts. These will range from real estate agents, mortgage brokers, appraisers, and notaries, among others.
Stage 4: Moving in. Upon close of escrow, additional trades are tapped. For example, movers and cleaners are important during the immediate move, but as consumers settle, they are more likely to spend money elsewhere in the economy. Local retail is a big beneficiary.
When you add it all up, you can see how a strong housing market is contributing to a virtuous cycle for growth in the wider economy and is one of the most important sectors today. In fact, the NAHB estimates that for every home built, roughly three jobs are created. Further, housing has tendrils into the consumer economy as the wealth effect and wealth building are important for sentiment and spending.
Today’s housing boom is not without consequences. There is a clear line between the winners and losers that can cause lasting economic inequality. The competitive market is creating barriers to homeownership for those lacking a sizable down payment, a great credit score, and even the ability to bring extra money to the table to cover appraisal issues. Those who have been fortunate enough to buy a home are benefiting from the equity gains and the fact that they’ve now locked in their monthly payment at some of the lowest mortgage interest rates in history.
Over the coming months, we expect the housing market to remain strong but shift down in gear as wallet share allocation changes, people start to head back to the office, and everyday distractions return. We, as an industry, need to think through the challenges that will come in an environment with rising mortgage rates and rising home prices as we bring more homes to the market and work to make sure they meet consumer needs. This effort will help ensure that the housing industry continues to be both successful and a positive contributor to wider economic growth.