Why Residential Construction Will Not Have a Material Impact on Growth
By Walter Kurtz, Sober Look
Some are expecting the latest surge in US home construction to lift economic growth. Even though it is indeed a positive development, construction however will have only a limited contribution to the GDP.
Home construction in the US has indeed been on the rise due to tight housing inventories (see discussion), particularly in neighborhoods where people actually want to live. Here are a couple of examples:
1. Star-Telegram: – New home construction in Dallas-Fort Worth jumped 34.5 percent in the third quarter compared with a year ago, the fifth straight quarter of gains and the best since the second quarter of 2010, Residential Strategies said Thursday.
2. WRAL: – Wake County’s slowly improving housing market got more good news recently, as the National Association of Home Builders predicted that home building could be back to normal by the end of 2013. Home construction is up 27 percent compared with this time last year, despite only 1,500 new homes being on the market in the county.
But unfortunately just as single family home construction momentum picked up, multifamily construction has slowed – offsetting some of the gains.
But even if the total residential construction spending accelerates, right now it unfortunately accounts for only about 1% of US GDP. So as much everyone wants to see construction drive GDP (as it did to some extent during the boom years), it is still a fairly insignificant contributor to the overall output.
A Pickup for Housing in 2012?
by CalculatedRisk on 12/28/2011
Residential investment made a small positive contribution to GDP in 2011, for the first time since 2005. And construction employment turned slightly positive in 2011.
Now the question is what will happen in 2012? I think some pickup is likely, but I’m not as optimistic as some other people …
From the WSJ: Hedge Funds See Rebirth for U.S. Housing
Hedge funds run by Caxton Associates LP, SAC Capital Advisors LP, Avenue Capital and Blackstone Group LP have been buying housing-related investments, betting on a rebound. And formerly bearish research firm Zelman & Associates now predicts a housing pickup, as does Goldman Sachs Group Inc.
Even some housing skeptics acknowledge that real estate may no longer be the drag it has been on the economy. … “I’m sold that it’s a bottom,” says James Bianco, who runs Bianco Research, in Chicago. “It’s gone from a negative to a nothing for the economy,” …
Ivy Zelman [predicts] that rising rents will push would-be buyers to purchase homes. A housing recovery isn’t “happening as fast as everyone would like,” she says. But there are “a lot of pillars in place to give us some optimism.”
Of course there are still housing bears:
“The smartest money in the world has been carried out on stretchers betting on a true recovery for housing,” says Mark Hanson
I think we will probably see some increase in new home sales in 2012, but it will be from a very low level (around 300 thousand new homes will be sold in 2011, a record low since the Census Bureau started tracking new home sales in 1963). I’ll have more on housing and residential investment soon.
Filed under GDP, Home Sales