The country’s real gross domestic product grew at an annual rate of 2.8% in the third quarter of this year. But with declining sales and slowing price growth, distributors may be forgiven for feeling left out.
This report was originally published exclusively to subscribers of Intel, Inman’s data and research division, on November 4, 2024. For more analysis on your real estate business, subscribe to Inman Intel.
New data released earlier this month confirms that most sectors of the economy are still growing at a high pace, even though the housing market remains neglected.
The U.S. Bureau of Economic Analysis reports that real gross domestic product, adjusted for inflation, grew at an annual rate of 2.8 percent in the third quarter of this year.
It is no wonder that real estate agents watching this heated development feel left out.
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The brokerage industry has been plagued by plummeting sales and slowing price growth, with brokerage commissions stagnant at a time when most other sectors were enjoying strong profits.
And new home construction, which had been on a recovery trend in the first few weeks of the year, has since taken a turn for the worse.
These factors are contributing to a continuing housing contraction that is almost unique in size and scope in this healthy economy.
In this week’s report, Intel analyzes the slump in housing numbers amid strong GDP announcements.
left behind
The government tracks the performance of each sector in its GDP figures.
And the key number for the housing industry is a category known as private housing capital investment, which accounts for 3 to 5 percent of total U.S. economic output.
This housing-oriented GDP component primarily includes:
Housing sales brokerage fees New housing construction work Housing renovation costs
And if you look at the graph below, you can see how far the industry’s current output lags compared to other sectors.
daniel houston charts
The blue line, which lagged the broader economy during the housing boom early in the pandemic, is now 2% below its seasonally adjusted level from the first quarter of 2020, after accounting for inflation.
Meanwhile, other sectors of the economy have made strong and steady progress, even after adjusting for inflation.
Percent change from Q1 2020
U.S. real gross domestic product, all sectors: +13% Real private housing investment: -2%
The watershed that real estate has hit becomes even clearer when we look at what happened after early 2022, when housing industry activity began to contract sharply due to a new rise in mortgage rates.
Percent change since Q4 2021
U.S. real gross domestic product, all sectors: +6% Real private housing investment: -13%
Over this period, we see that the contraction in the housing market has been twice as rapid as the boom in other sectors.
And while the housing industry made some progress toward an initial recovery, its efforts suffered setbacks in the spring and summer of 2024.
Within the housing contraction
The data makes clear that the government’s rough estimates of housing production reflect much more than just home sales.
If that were the only thing driving the health of the housing industry, the entire sector would be in serious trouble.
But instead, we see that this measure of private housing capital investment (represented by the blue line in the chart below) is closely related to the activity of yellow home builders.
daniel houston charts
Sales of existing single-family homes remain about 30 percent below pre-pandemic levels, according to a survey by the National Association of Realtors.
So why did industry output decline by only 2% over the same period?
First, after seeing a particularly sharp decline in new single-family projects throughout 2022, the residential construction sector is actually approaching levels before the pandemic disrupted the economy.
For another, home price gains since the beginning of the pandemic appear to have largely held steady, helping soften the blow for brokers from the plunge in existing home sales.
Percent change from February 2020
Building permits approved, single-family homes: -2% Existing home sales, single-family homes: -31% Case-Shiller Home Price Index, above inflation: +28%
From a brokerage commission perspective, it’s interesting to note that the significant decline in home sales since the start of the pandemic has been almost completely offset by price increases over this period, even after accounting for inflation.
But if we look only at the period since the pandemic boom began to unravel, an even sharper divide emerges.
Rate of change after December 2021
Construction permit approvals, single-family homes: -16% Existing home sales, single-family homes: -36% Case-Shiller Home Price Index, excess inflation: +2%
After all, no matter how you slice it, housing downsizing is very real. This is due to a significant decline in home sales and a significant decline in home construction activity, which has not yet fully recovered. This has only been slightly offset by rising home prices, especially over the past few years.
And it happened against the backdrop of an economy that was able to achieve healthy growth, with or without real estate.
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