Housing playing a bigger role in GDP growth

In the years following the housing market collapse, real estate did very little to help spur the nation's gross domestic product, but as conditions stabilize, industry experts say this trend could reverse in the coming months.

In the years following the housing market collapse, real estate did very little to help spur the nation's gross domestic product, but as conditions stabilize, industry experts say this trend could reverse in the coming months.

Overall GDP is expected to grow between 1.9 and 2.4 percent by the end of 2012, according to a forecast from the Federal Reserve Bank. While housing is anticipated to play only a marginal role in this gain, it will contribute a more significant share than previous years.

"I think so, but it will be very small," Fannie Mae director of mortgage market analysis Richard Koss said during the American Action Forum conference. "In the past it was somewhere around 6 percent of GDP, but now it might bump up to something like 2 percent."

Between 2005 and 2011, housing consistently contributed less to the country's GDP each year, as construction rates lagged. Specifically, in 2005, home building activity added an estimated $612 billion to GDP. By 2011 this dropped to roughly $440.5 billion. The most significant decline came in 2009 when construction added just 13 percent less to the GDP than the previous year, accounting $456 billion.

Meanwhile, home building activity is not expected to increase to pre-recession level for quite some time. In the meantime, investors and financial institutions will continue to be hesitant about extending lines of credit to builders until the distressed inventory thins, analysis Any Winkler and Douglas Holtz-Eakin also said during the conference. The presence of foreclosed houses and short sales caused property values to fall more than 30 percent in the past five years in some areas of the country.

However, distressed properties aren't the only factors adding downward pressure to the housing market. In addition, rising student loan debt is also having a significant impact, says the National Association of Home Builders. The total nationwide student debt load surpassed $1 trillion earlier this year.     

The recent drop in property values caused a number of cash-strapped parents of college-bound students to call on their children to take on more student loans to compensate, said the industry group. Data from the Federal Reserve indicates that median household wealth fell nearly 40 percent between 2007 and 2010. 

In the future, this development could impact the financial safety and soundness of many young adults. As a result, some of them may have to delay making the transition to homeownership.



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