Why Housing Is Such A Huge Deal, Even Though It's Only 2.5% Of GDP

People frequently ask how a sector that currently accounts for 2.5% of the US economy can be so important. First, residential investment has large swings during the business cycle, and will probably increase sharply over the next few years. Second, there are spillover effects from housing – meaning housing has a much larger impact on overall economic activity than just “residential investment”.

We are starting to see some signs of spillover from Kate Linebaugh and James Hagerty at the WSJ: From Power Tools to Carpets, Housing Recovery Signs Mount

Companies that sell power tools, air conditioners, carpet fibres, furniture and cement mixers are reporting stronger sales for the fourth quarter, providing further evidence that a turnaround in the housing market is taking hold.

… executives at companies exposed to housing are growing more optimistic. Improvement in the sector could help broad tracts of the economy by creating jobs, improving consumer confidence and boosting property-tax receipts for municipalities. Construction typically is a big job creator during expansions, though the industry has been slow to staff up during the current recovery.

“The housing recovery will help lift businesses that have long been dormant,” said Mark Vitner, senior economist at Wells Fargo. “People will be fixing up homes to put them up for sale—buying new air conditioners, painting, fixing roofs. As the new-home market picks up, that really feeds into [gross domestic product].”

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Read more at http://www.calculatedriskblog.com/2013/01/housing-spillover-effects.html#VdkhXj81R8rlb0Rf.99

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