Housing Market’s Contribution to GDP Highest in 13 Years

July 31, 2020
Aerial view of suburban neighborhood
By Tyler

The current market’s historically low interest rates, housing shortage, and revived interest on the importance of the home have proven that housing will lead the economic recovery, according to NAHB. The industry’s numbers have shown to be a positive light at the end of the tunnel amongst the broader struggle of the economy. In the second quarter, gross domestic product declined at a -32.9% rate while housing’s share of GDP increased to 16.2%. This is the highest number since the third quarter of 2007. Home building and remodeling accounted for 3.3% of GDP.

Housing gains will continue as the consequences of the virus crisis are likely to lead to a reversal for declining home size trends and a greater need for additional home office space. For these and other reasons, home building and remodeling have demand-side potential that can help fuel a recovery in the labor market, given the widespread impact that construction has on the economy in terms of jobs and state/local tax revenue.

Housing-related activities contribute to GDP in two basic ways.

The first is through residential fixed investment (RFI). RFI is effectively the measure of the home building, multifamily development, and remodeling contributions to GDP. It includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes and brokers’ fees.

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