Hidden in the Q3 report on Gross Domestic Product
(GDP) on Thursday, which showed a rebound of 33.1 percent from the 31.4 percent
loss in Q2 was news of some real growth. Robert Dietz, chief economist of the
National Association of Home Builders points out, in an article in NAHB’s Eye
on Housing blog, that residential fixed investment (RFI), which includes home
building and remodeling, expanded at a 59.3 percent annual rate.
Dietz says low interest rates, a renewed focus on the
importance of home, an evolving geography of housing demand, and a lack of
inventory has spurred a “dramatic turnaround” in the housing sector since
spring. This, he adds, has been a relative bright spot for the economy.
share of the GDP remains elevated. In the second quarter, amid the broader
economic weakness, housing accounted for more than 16 percent of the overall
number. As the rest of the economy recovered in the third quarter that share
declined to 15.5 percent. Nonetheless, Dietz says, “Except for the historic second quarter, this is the highest
share for housing since the summer of 2008.”
contribute to GDP in two basic ways. The first, RFI, includes construction of
new single-family and multifamily structures, residential remodeling, production
of manufactured homes and brokers’ fees. RFI in the third quarter represented 3.5
percent of the economy. It was at a seasonally adjusted annual pace of $642
billion measured in inflation adjusted 2012 dollars, the highest reading since
Housing’s second impact on GDP is
the measure of housing services. This includes gross rents (including
utilities) paid by renters, and owners’ imputed rent (an estimate of how much
it would cost to rent owner-occupied units) and utility payments. Dietz says the
imputed rent factor is necessary from an income accounting approach because,
without it, increases in homeownership would result in GDP declines. For the
third quarter, housing services represented 12 percent of the economy or $2.2
trillion on a seasonally adjusted annual basis. The aggregate of these two factors
means a 15.5 percent share of the Q3 GDP.
FRI is the more cyclical of the two
and in the third quarter its 3.5 percent share of GDP represented, as noted about,
a 59.3 percent growth rate. Dietz says housing gains will continue as the
consequences of the virus crisis are likely to lead to a reversal for the trend
toward declining home size due to a greater need for additional home office
space and more working from home.
RFI has historically averaged 5
percent of GDP and housing services between 12 and 13 percent for a combined
contribution of 17 to 18 percent. However, the housing share of GDP lagged
during the post-Great Recession period due to underbuilding, particularly for
the single-family sector.