November 27, 2018
This week’s topic is very interesting. The economy is rolling along and, thus far the housing sector has contributed to this economic growth. But recent evidence is pointing towards at least a slight slowdown in the sector. The question is, how much will this slowdown affect the overall economy? Generally, real estate construction itself contributes about 7.0% of the total economic output, or GDP. It should be noted that this number includes commercial construction and there is no evidence that the commercial real estate sector is slowing down — yet.
It also should be noted that real estate’s influence on the economy is much more far reaching than the actual construction. The building and purchase of real estate affects consumer consumption greatly and the economy is heavily based upon personal consumption — to the tune of about 70%. That is a larger number to say the least. No one needs to be reminded that the Great Recession was triggered by a real estate crisis just over ten years ago.
No one is predicting a major real estate downturn today. As a matter of fact, a slight slowdown could be beneficial, as it could loosen the tight reins on inventory and cause housing prices to moderate. If that causes the economy to slow a bit, it could also be the precursor for slightly lower interest rates. Perhaps the recent drop in oil prices also represents part of this coming trend–though the size of the decrease would indicate that there are other factors in play with regard to energy prices. In conclusion, the performance of housing can affect the economy. We may be about to find out how much and we are hoping that the result is good news for potential homebuyers.
Source: Origination Pro
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