John Whitefoot: I hate to harp on the U.S. housing market so much, but it is a major indicator of the health of the U.S. economy. Following previous recessions, investment in the U.S. housing market (NYSEARCA:IYR) increased early on and helped drive the recovery. In fact, the U.S. housing market was a major factor that helped lift the U.S. economy out of past recessions in 1981, 1990, and 2001. But it isn’t happening this time around.
According to the National Association of Home Builders, the U.S. housing market contributes to the country’s gross domestic product (GDP) in two ways: private residential investment and consumption spending on housing services.
Historically, residential investment, which includes construction of new single-family and multi-family structures, residential remodeling, the production of manufactured homes, and brokers’ fees, has averaged around five percent of U.S. GDP. (Source: “Housing’s Contribution to Gross Domestic Product (GDP),” National Association of Home Builders web site, last accessed March 3, 2014.)
Housing services, which includes gross rent, utility payments, and imputed rent (an estimate of how much it would cost to rent owner-occupied units), averages between 12% and 13%. That leads to a combined total of 17%–18%.
But the U.S. housing market has been falling short as an engine of economic growth. In 2005, residential investment accounted for 6.1% of U.S. GDP. In 2012, it accounted for just 2.8%, and it has averaged just three percent since then—meaning that two percent of the national GDP is missing from private residential investment.
More broadly, since the U.S. housing market collapsed in 2008, the industry has made less than half its normal contribution to U.S. economic growth. According to the United States Census Bureau’s second estimate, total U.S. GDP for 2013 will come in close to $16.8 trillion—that means the missing two percent of private residential investment translates into a lost $336 billion.
Collectively, private residential investment and consumption spending accounts for 15.3% of total U.S. GDP growth, significantly less than the 17%–18% average. And the most recent U.S. housing market data continues to suggest that actual growth is still on the horizon.
Pending sales of U.S. homes climbed just 0.1% month-over-month to 95.0 in January—a far cry from the 2.9% growth analysts were projecting and virtually unchanged at a two-year low. This comes on the heels of a 5.8% drop in December and is nine percent below the January 2013 reading of 104.4.