Housing’s share of the economy edged lower at the end of the fourth quarter of 2022. This is the second straight quarter where GDP increased in 2022, with overall GDP increasing at a 2.9% annual rate, following a 3.2% increase in the third quarter and 0.6% decrease in the second quarter. However, due to higher interest rates, housing’s share of GDP decreased to 15.9%, below the third quarter share of 16.1%.
In the fourth quarter, the more cyclical home building and remodeling component – residential fixed investment (RFI) – decreased to 4.0% of GDP. Home construction continues to face challenges such as higher interest rates and decreased housing affordability. RFI subtracted 129 basis points from the headline GDP growth rate in the fourth quarter of 2022.
In 2022, RFI made up 4.4% of GDP which is down from 4.8% in 2021. Housing services made up 11.8%, down from 11.9% in 2021. Housing’s share was 16.2% over the year, down from 16.7% in 2021.
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.
For the fourth quarter, RFI was 4.0% of the economy, recording a $1.0 trillion seasonally adjusted annual pace.
The second impact of housing on GDP is the measure of housing services, which 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. The inclusion of owners’ imputed rent is necessary from a national income accounting approach, because without this measure, increases in homeownership would result in declines for GDP.
For the fourth quarter, housing services represented 11.9% of the economy or $3.1 trillion on seasonally adjusted annual basis.
Taken together, housing’s share of GDP was 15.9% for the fourth quarter.
Historically, RFI has averaged roughly 5% of GDP while housing services have averaged between 12% and 13%, for a combined 17% to 18% of GDP. These shares tend to vary over the business cycle. However, the housing share of GDP lagged during the post-Great Recession period due to underbuilding, particularly for the single-family sector. The recent expansion in housing activity has increased these shares to near historic norms.
Tags: homebuilding, housing, housing share of GDP, housing share of the economy
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Now, diving into the provided article, it discusses the dynamics of housing's share of the economy, specifically in the context of the fourth quarter of 2022. The Gross Domestic Product (GDP) increased by 2.9% annually during this period, marking the second consecutive quarter of growth in 2022. Notably, the housing sector's contribution to GDP decreased to 15.9%, attributed to higher interest rates compared to the previous quarter.
The article introduces the concept of Residential Fixed Investment (RFI), a crucial metric encompassing home building, multifamily development, and remodeling contributions to GDP. In the fourth quarter, RFI accounted for 4.0% of the economy, with a seasonally adjusted annual pace of $1.0 trillion. The cyclical nature of RFI is highlighted, with challenges such as higher interest rates impacting its share in GDP growth, subtracting 129 basis points in the specified quarter.
In 2022, RFI constituted 4.4% of GDP, a decline from the previous year's 4.8%, indicating a shift in the housing market landscape. Additionally, housing services, which include gross rents, owners' imputed rent, and utility payments, made up 11.9% of the economy in the fourth quarter, equivalent to $3.1 trillion on a seasonally adjusted annual basis.
The combined impact of RFI and housing services led to housing's overall share of GDP being 15.9% in the fourth quarter. The article provides historical context, stating that historically, RFI has averaged approximately 5% of GDP, while housing services have ranged between 12% and 13%, resulting in a combined 17% to 18% of GDP. The variations in these shares over the business cycle are acknowledged, with a particular emphasis on the post-Great Recession period, during which underbuilding, especially in the single-family sector, led to a lag in housing's share of GDP. However, recent expansions in housing activity have brought these shares closer to historical norms.
In summary, the article provides a comprehensive overview of the intricacies of housing's contribution to the economy, delving into key metrics like RFI and housing services, while also considering historical trends and the impact of economic cycles on the housing market.
FAQs
However, due to higher interest rates, housing's share of GDP decreased to 15.9%, below the third quarter share of 16.1%. In the fourth quarter, the more cyclical home building and remodeling component – residential fixed investment (RFI) – decreased to 4.0% of GDP.
What percentage of GDP is spent on housing? ›
Share: Housing's combined contribution to GDP generally averages 15-18%, and occurs in two basic ways: Residential investment (averaging roughly 3-5% of GDP), which includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes, and brokers' fees.
How does GDP affect housing prices? ›
Studies in Asia, Europe, and the US reveal that median home prices correlate by as much as 60% to 95% with GDP per capita. In the long run the growth trends of both cycles typically correspond to each other.
How much of GDP is housing stock? ›
Housing's share of the economy remained at 15.9% at the end of the third quarter of 2023. Overall GDP increased at a 4.9% annual rate, following a 2.1% increase in the second quarter of 2023 and 2.2% increase in the first quarter of 2023.
What is the relationship between housing starts and GDP? ›
Housing starts are a lagging indicator which comes out after the release of GDP and can be a strong predictor of the GDP number.
What percentage of income is spent on housing each year? ›
American households spend an average of $21,409 per year on housing costs, which makes up 25.8% of total average earnings.
What is the average amount spent on housing? ›
Housing is by far the largest expense for Americans. Monthly housing expenses in 2022 averaged $2,025, a 7% increase from 2021. Over the course of 2022, Americans spent $24,298 on housing on average. With housing prices cooling off somewhat in 2023, it remains to be seen how much spending will change year over year.
Does GDP affect real estate? ›
The Economy
Another key factor that affects the value of real estate is the overall health of the economy. This is generally measured by economic indicators such as the GDP, employment data, manufacturing activity, the prices of goods, etc. Broadly speaking, when the economy is sluggish, so is the real estate market.
Does GDP include houses? ›
GDP is the annual amount of goods and services produced in a country. GDP would include things such as construction, real estate marketing, and other services involved. Rent to landlords counts as their income as well. The GDP counts the income generated from houses or land properties.
Does rent count in GDP? ›
Answer and Explanation: Yes, paying for rent is part of GDP. GDP is classified into four major components, which include personal consumption, government spending or expenditure, investments, and net exports.
While home prices haven't pulled back as much as Zandi expected, the U.S. housing market from a fundamental perspective is healing a little. In Q4 2023, the U.S. housing market was “overvalued” by 13.9%. While that's still above pre-pandemic levels, it's well below the peak “overvaluation” in Q2 2022 (27%).
How much is the housing stock worth in the US? ›
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| Top 10 Most Valuable States |
|---|
| State | Total Housing Market Value (billions) | Change Since June 2022 'Peak' (billions) |
|---|
| California | $10,175.0 | -$344.4 |
| Florida | $3,846.4 | $159.0 |
| New York | $3,689.9 | -$9.0 |
7 more rowsSep 26, 2023
Yes, rent is part of the Services component of the GDP. “When a landlord provides housing services to a tenant in exchange for payment—rent—the transaction appears on the product side of the accounts as personal consumption expenditures for housing services and on the income side as rental income of persons.”
How are new homes accounted for in GDP? ›
Everything new including purchase of assets by housesholds and firms are considered investments because of their potential to generate income. Only new acquisitions (housing, building, vehicle, etc) can be counted as part of the current GDP, otherwise it will be excluded for being violative of the double counting rule.
Does buying a house change GDP? ›
There is only a change in GDP to the extent there are market goods and services used in the sale and only those goods and services are counted. The actual sales revenue are irrelevant. For example, the home inspection, appraisal, brokerage fees, and, I believe mortgage closing costs, would be in GDP.
How does housing starts affect the economy? ›
Declining housing starts show a slowing economy, while increases in housing activity can pull an economy out of a downturn. Housing starts are considered to be a leading indicator, meaning it detects trends in the economy looking forward.
What is the 50 30 20 rule? ›
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
What is the 28 36 rule? ›
The 28/36 rule dictates that you spend no more than 28 percent of your gross monthly income on housing costs and no more than 36 percent on all of your debt combined, including those housing costs.
What percentage of net income is housing? ›
The 25% post-tax model says that your mortgage payment should be less than 25% of your net income. For example, if you make $6,000 after taxes, you would want to keep your mortgage payment below $1,500 following the 25% post-tax model.
How much does the US government spend on housing? ›
The 2022 President's Budget requests $68.7 billion for the Department of Housing and Urban Development (HUD), approximately $9.0 billion more than the enacted level for 2021.
