Home > Business & the Economy > New Housing Starts: A Sign of the Times

New Housing Starts: A Sign of the Times

 Real Estate has become a major component of wealth and the economic engine of the United States.  A robust construction and real estate sector fueled economic growth for over a decade. The true significance wasn’t understood until the housing market started to unravel in 2007.

Delinquent mortgages and foreclosures nearly collapsed the world financial system.  Plummeting real estate values, and the related property taxes, have created substantial fiscal challenges for state and municipal governments.   And… the dramatic reduction of new construction projects has rippled throughout the economy… in a harsh manner.

Consequently, the number of new housing starts is a closely monitored statistic.  The Conference Board’s composite index of ten economic statistics, includes housing starts.  Their number includes both permits and the actual start of construction for single-family housing units.

Real estate activity comprises nearly 10% of GDP.  The current real estate crisis therefore is contributing to the continued economic recession, and its slow recovery is one of the reasons that the economy is not likely to rebound anytime soon.

New home construction affects many areas of the economy.  The most direct impact is on building supplies and labor markets.  I recently heard one analyst state that the U.S. manufacturing jobs lost over the past two decades essentially transitioned to construction jobs.  This statement seems to be validated by the unemployment rates of the states hardest hit with distresses properties – Arizona, California, Florida and Nevada.  All except Arizona had unemployment rates well above the national average.

Consumer spending also accounts for 70% of GDP.  While it may not be easy to measure, new housing indirectly affects consumer spending.  Appliances and fixtures are often part of the new home cost.  However, there is a lot of indirect spending related to occupying a new home.  If you’ve ever moved into a new home, you know the amount of money you spend for new drapes, curtain rods, furniture and décor decking out your new digs.

In short, new housing construction is significant in the overall contribution and strength of the current U.S. economy. The glut of existing homes on the market, combined with a tight credit market and millions of Americans with poor credit, doesn’t create an environment conducive for new housing construction.  Therefore, do not expect to see any significant improvement in new housing starts anytime soon.  As such, the road to economic recovery will likely be longer and slower as a result of the lack of new housing starts.

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