The nation’s real gross domestic product grew at an annual rate of 2.8 percent in the third quarter of the year. But with sales falling and prices rising, agents could be forgiven for feeling left out.
This report was originally published on Nov. 4, 2024, exclusively for subscribers Inteldata and research arm of Inman. Sign up for Inman Intel for an in-depth analysis of the real estate business.
New data released earlier this month confirm that growth is still accelerating in many sectors of the economy, although housing continues to be left in the dust.
The US Bureau of Economic Analysis reports that the country’s real gross domestic product – an inflation-adjusted measure of overall economic output – grew at an average annual rate of 2.8 percent in the third quarter of the year.
Realtors watching this hot streak could be forgiven for feeling left out.
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The consumer industry has been plagued by stagnant sales and price growth that have left retailers stagnant even at a time when most other sectors have enjoyed strong gains.
And new housing starts – which had been on a recovery path as recently as the first weeks of this year – have since taken a turn for the worse.
These factors contribute to ongoing housing shortages that vary greatly in size and scope in this healthy economy.
In this week’s report, Intel breaks down the weak housing numbers within a strong GDP release.
Left behind
Within the GDP numbers, the government tracks the performance of each sector.
And an important number of the real estate industry is the category known as fixed investment for private residenceswhich makes up 3 percent to 5 percent of the total economic output of the US.
This household-oriented component of GDP mainly includes:
- Realtor commissions on residential property sales
- Construction of new residential buildings
- Spending money on improving residential properties
And we can see in the chart below how far the production of this industry today lags compared to other sectors.
Chart by Daniel Houston
The blue line — which ran ahead of the broader economy during the housing boom — is now at rest. 2 percent below its adjusted rate from time to time from the first quarter of 2020, after accounting for inflation.
Meanwhile, other sectors of the economy have made strong and steady progress in correcting inflation.
Percentage change from the first quarter of 2020
- Genuine US domestic product, all categories: +13%
- Fixed investment for private residences: -2%
The divergence in the path taken by real estate becomes even more apparent when you look at what has happened since the beginning of 2022, when mortgage rates that had just risen began a sharp decline in housing industry activity.
Percentage change from the fourth quarter of 2021
- Genuine US domestic product, all categories: +6%
- Fixed investment for private residences: -13%
In this period, we see that the decline in housing has been twice as steep as the economic growth that has occurred in other sectors.
And while the housing industry has taken some steps toward recovery, those efforts have hit a snag in the spring and summer of 2024.
Inside the housing contraction
One thing the data makes clear is that the government’s broadest measure of housing emissions reflects more than just home sales.
If that was the only thing driving the life of the real estate industry, the entire industry would be in real trouble.
But instead we see that this measure of residential fixed investment – represented by the blue line in the chart below – is closely linked to the homebuilder activity in yellow.
Chart by Daniel Houston
We know from the National Association of Realtors that those sales of existing single-family homes are still there 30 percent less pre-epidemic levels.
So how can the product of the industry be down only 2 percent at that time?
First, after a sharp decline in new single-family projects in 2022, the housing sector has returned to near its pre-pandemic levels.
For one thing, home price growth since the early pandemic appears to have slowed, which has helped cushion the blow to brokerages from a steep decline in existing home sales.
Percentage change as of February 2020
- Building permits approved, single family: -2%
- Existing home sale, single family: -31%
- The Case-Shiller home price index, plus inflation: +28%
Note how, from the seller’s commission point of view, the lowest level of home sales since the beginning of the pandemic has been almost offset by the increase in prices, even after accounting for inflation during that period.
Looking only at the time since the pandemic began, however, reveals a stark divide.
Percentage change from December 2021
- Building permits approved, single family: -16%
- Existing home sale, single family: -36%
- The Case-Shiller home price index, plus inflation: +2%
Ultimately, no matter how you slice it, the housing contraction is very real. It is driven by a sharp decline in home sales and a sharp decline in homebuilding activity, which has yet to fully recover. It has been reduced only slightly by the increase in home prices over the last few years in particular.
And it has happened against an economic background that has been able to grow at a healthy clip – with or without housing.
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