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February 2021

Housing sector called an economic bright spot

February 4, 2021

Recent expansions in housing activity have increased its share of gross domestic product (GDP) to near historic norms, according to research by the National Association of Homebuilders (NAHB).

Low mortgage interest rates, a renewed focus on the importance of home, an evolving geography of housing demand, and a lack of for-sale inventory are credited with propelling what home builders say is a dramatic turnaround for housing since spring 2020.

Overall GDP growth continued a recovery at a 4% seasonally adjusted annual rate for the fourth quarter of 2020. "Residential fixed investment (home building and remodeling) expanded at a 33.5% annualized rate, after a blockbuster 63% rate of growth for the third quarter," stated NAHB in its "Eye on Housing" report.

Housing's share of GDP remains elevated as a result of the 2020 virus crisis. It surpassed 18% in the second quarter of 2020, then scaled back slightly during the third quarter to 17.5%. During the fourth quarter, as single-family construction accelerated, it rose to 17.7%.

NAHB expects home construction will continue to expand as the consequences of the pandemic are likely to lead to a reversal for declining home size trends, a greater need for additional home office space, and more working from home.

Housing's combined contribution to GDP generally averages 15-to-18%, and occurs in two basic ways: residential investment (averaging around 3-to-5% of GDP) and consumption spending on housing services (averaging roughly 12-to-13% of GDP). Residential investment includes construction of new single family and multifamily structures, residential remodeling, production of manufactured homes, and brokers' fees. Consumption spending on housing services includes gross rents and utilities paid by renters, as well as owners imputed rents and utility payments.