As the forces contributing to the real estate market’s recovery have shifted from traditional business equipment and software investments, one thing remains certain: real estate is still a local phenomenon, according to CoreLogic’s latest MarketPulse report.
Businesses emerging out of the recession accelerated investment in equipment and software, growing at a rate of 10% between the third quarter of 2010 and the first quarter of 2012.
Since then, investment in these areas has dropped off, slowing to less than half that rate and rising only 4% in the first quarter of 2013.
Currently, residential investment is picking up steam, growing 14% in the second half of 2012 compared with 3% in the second half of 2011.
Investments in residential home building creates a significant amount of economic activity as it has averaged about 5% of GDP historically, according to data from the National Association of Home Builders (NAHB).
Although not yet quite at that level, the residential investment share of GDP is rising, notes CoreLogic. Returning to this pre-recession level relies heavily on new home sales, more so than any other residential activity.
Residential investment is not occurring evenly throughout the U.S. but is concentrated in regions that are either recovering from the boom-bust cycle, or exhibiting strong economic fundamentals and strengthening demand, according to CoreLogic’s Chief Economist Mark Fleming, Ph.D, and Principal Economist Sam Khater.
New home sales have been lukewarm in the first stages of the recovery, as the new home market has been competing with the available housing supply stemming from short sales and foreclosures.
However, in the last year, CoreLogic notes this inventory of existing homes has been dwindling, giving rise to increased homeowner interest in purchasing new homes.
“New home sales add to the economy’s capital stock and every new sale requires the acquisition and development of land, purchase of goods and materials, and utilization of labor inputs,” writes Khater.
For example, the sale of every new home requires the equivalent of up to five full-time jobs for 12 months, he writes.
“Since new sales require local labor and material input, it has a local targeted impact on the economy,” writes Khater.
And with most new sales concentrated in harder-hit suburbs near metropolitan areas, construction activity in these regions serves as a “much needed economic stimulus.”
Written by Jason Oliva