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October 31, 2014

How Housing May Help Give the Economy a Lift

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How Housing May Help Give the Economy a Lift

Lately, the housing market may be the one thing going right for the economy, Reuters reports. Several signs have pointed to a housing market in full recovery mode.

“Higher sales, prices, and building, albeit modest so far, are a welcome boost as other drivers of the economy falter,” Reuters reports.  

Unlike the “boom” years, housing has accounted for a small fraction of the gross domestic product -- in 2005 it accounted for 6 percent, compared to 2.5 percent in the third quarter of this year. The housing sector "would have to be on steroids to significantly boost GDP growth," Paul Dales, an economist with Capital Economics, wrote in a recent research note.

Still, several economists are hopeful residential investment could add two- to three-tenths of a percentage point to the GDP next year. 

An increase in housing-related jobs also may help give the economy a lift. Housing-related jobs have increased an average of 11,000 a month this year. In 2011, housing-related jobs posted an average monthly decline of 1,000. By early 2013, housing-related jobs are expected to increase to 30,000 a month as new-home construction rises, says Jim O’Sullivan, chief of U.S. economist at High Frequency Economics. 

That could make housing a significant contributor to chipping away at the unemployment rate. Analysts have estimated that the economy needs 150,000 jobs created a month to keep the unemployment rate steady.

Housing may also help lift consumer spending, another important factor that needs to increase to give the economy a jolt. Real estate wealth can help, economists say. As more home owners refinance into record low mortgage rates, more households may in turn then have more to spend. 

Source: “Housing Market Rebound Fails to Recharge Economy,” Reuters (Nov. 5, 2012)

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