Housing Making a Turn?

In Economy, Housing by Landmark Financial Advisors, LLC

Housing contributes to GDP in two basic ways: through private residential investment and consumption spending on housing services. Historically, residential investment has averaged roughly 5 percent of GDP while housing services have averaged between 12 and 13 percent, for a combined 17 to 18 percent of GDP. These shares tend to vary over the business cycle.

Residential investment includes construction of new single family and multifamily structures, residential remodeling, production of manufactured homes, and brokers’ fees. Consumption spending on housing services includes gross rents (which include utilities) paid by renters, and owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units), and utility payments. Including owners’ imputed rent in GDP has been standard practice in national income accounting for a long time. Were owners’ imputed rent not included, an increase in the homeownership rate would cause GDP to decline.

The National Association of Home Builders publishes housing’s contribution to GDP.  The interesting story is that the combined index (Residential Investment + Housing Services) is at 15% of GDP for 2011.  This is significantly below the long term averages, but has leveled off as real estate has found a floor.  We expect housing to start to making a positive contribution (growth/expansion), which is a positive for the economy.