Dive Brief:
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A slight contraction in residential fixed investments — a calculation of the homebuilding, multifamily development and remodeling sectors’ contributions to the economy — in the third quarter negatively impacted the nation’s overall gross domestic product for the period, according to a recent analysis by the National Association of Home Builders.
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For the period, RFI held steady around 3.5%, dipping from a seasonally adjusted annual rate of $589 billion to $583 billion and taking 0.16% off the GDP growth rate. RFI's share of GDP also dipped in the second quarter, marking the second time since the recession that the category has contracted for two-straight months.
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Housing services, which includes gross rents and owners’ imputed rent, took 12.2% of the economy at a seasonally adjusted annual rate of $2.03 trillion during the third quarter. For more than three decades, RFI has averaged 4.7% of GDP and housing services has averaged 13.3%. Overall, housing’s share of GDP edged down 0.1% to 15.6% during the period.
Dive Insight:
Despite the slight easing in RFI, the NAHB added, its share of the overall economy has risen from 2.6% at the end of the recession to its current range of 3.5%. That compares to annual GDP growth of 3.5% during the third quarter and an expected 1.9% in the fourth quarter, according to initial estimates from the Bureau of Economic Analysis.
The fourth quarter figures reflect improvements in residential fixed investments, but further data released next month will offer a clearer picture of how the category performed during that period.
Although there are some questions hanging over the market’s growth rate this year, many observers believe the housing industry continues to look reasonably healthy, with total housing starts increasing 4.9% from 2015 to 1.166 million in 2016.
As home prices rise, so does the housing market's overall value. A report from the Urban Institute’s Housing Finance Policy Center in December 2016 valued the market at $23.9 trillion, the most since the mid-2000s, while household debt has stayed flat and equity has increased.
Homebuilders remain fairly bullish on market conditions due to solidifying demand. In a call with investors last week, officials at Atlanta-based PulteGroup credited their jump in home orders during the fourth quarter to an uptick in job growth and consumer sentiment in their markets, even ahead of higher interest rates that stand to affect buyer affordability.
However, the impact of higher mortgage rates as well as elevated lot development costs and a shortage of skilled labor could weigh heavily on the market this year.
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