{"id":1191,"date":"2025-04-18T23:42:33","date_gmt":"2025-04-18T23:42:33","guid":{"rendered":"https:\/\/staging8.dynaserverx.com\/newenglandtrust.com\/?post_type=newsletter&#038;p=1191"},"modified":"2025-04-18T23:45:39","modified_gmt":"2025-04-18T23:45:39","slug":"housing-market-trends-are-they-helping-or-hurting-the-economy","status":"publish","type":"newsletter","link":"https:\/\/staging8.dynaserverx.com\/newenglandtrust.com\/newsletter\/housing-market-trends-are-they-helping-or-hurting-the-economy\/","title":{"rendered":"Housing Market Trends: Are They Helping or Hurting the Economy?"},"content":{"rendered":"<p>Near the end of October 2023, the average rate for a 30-year fixed mortgage climbed to a 23-year high of nearly 8%, before retreating a bit.2 But despite sky-high borrowing costs, buyer demand exceeded the supply of homes for sale.<\/p>\n<p>As a result, sellers generally fared well, but 2023 was a challenging year for would-be homebuyers.<\/p>\n<h2>A market in limbo<\/h2>\n<p>Rising mortgage rates and home prices made it harder to afford a home, causing many buyers to be priced out of their favorite neighborhoods and forcing others out of the market altogether. In August 2023, housing affordability dropped to its worst levels since 1985.3<\/p>\n<p>Many people who already own homes have been reluctant to sell and move because they would have to finance their next homes at much higher rates than they currently pay \u2014 a conundrum that has worsened the inventory shortage.<\/p>\n<p>This persistent lack of inventory combined with low affordability has cut deeply into home sales. For all of 2023, existing home sales fell to the lowest level in nearly 30 years (4.09 million).4 An estimated 668,000 new homes were sold in 2023, an increase of 4.2% from the previous year, but new construction accounts for less than 15% of the total market.5<\/p>\n<h2>Housing and GDP<\/h2>\n<p>Housing contributes directly to the nation\u2019s gross domestic product (GDP) in two ways: spending on housing services and residential fixed investment. Housing services include rental payments, imputed rent (the estimated rental value of owner-occupied homes), and utility payments. Residential fixed investment includes new home construction, residential remodeling, production of manufactured homes, and brokers\u2019 fees. In the fourth quarter of 2023, housing accounted for $4.4 trillion of U.S. GDP on a seasonally adjusted annual basis or 15.9% (12.0% for housing services and 3.9% for residential fixed investment).6<\/p>\n<p>New home construction stimulates local economies by creating higher-wage jobs and boosting property tax receipts. Nationally (and locally), it benefits other types of businesses as well, by spurring production and hiring in industries that provide raw materials like lumber or that manufacture or sell building tools, equipment, and home components such as windows, cabinets, appliances, flooring, and fixtures. That\u2019s why the Census Bureau\u2019s report on housing starts \u2014 which were up 7.6% from the previous year\u2019s level in December 2023 \u2014 is considered a leading economic indicator.7<\/p>\n<hr \/>\n<h2>Home Building Stages a Recovery<\/h2>\n<p>In the third quarter of 2023, residential fixed investment added to U.S. GDP for the first time since Q1 2021. But in Q4, an increase in new residential structures was offset by a decrease in brokers&#8217; fees.<\/p>\n<p><strong>Residential fixed investment: contribution to change in GDP<\/strong><\/p>\n<figure id=\"attachment_1193\" aria-describedby=\"caption-attachment-1193\" style=\"width: 700px\" class=\"wp-caption aligncenter\"><img fetchpriority=\"high\" decoding=\"async\" class=\"wp-image-1193 size-full\" src=\"https:\/\/staging8.dynaserverx.com\/newenglandtrust.com\/wp-content\/uploads\/2025\/04\/WA_24055_Housing-Market-Trends-CHART-3.jpg\" alt=\"\" width=\"700\" height=\"269\" srcset=\"https:\/\/staging8.dynaserverx.com\/newenglandtrust.com\/wp-content\/uploads\/2025\/04\/WA_24055_Housing-Market-Trends-CHART-3.jpg 700w, https:\/\/staging8.dynaserverx.com\/newenglandtrust.com\/wp-content\/uploads\/2025\/04\/WA_24055_Housing-Market-Trends-CHART-3-300x115.jpg 300w\" sizes=\"(max-width: 700px) 100vw, 700px\" \/><figcaption id=\"caption-attachment-1193\" class=\"wp-caption-text\">Source: U.S. Bureau of Economic Analysis, 2024<\/figcaption><\/figure>\n<hr \/>\n<h2>Consumers are the key<\/h2>\n<p>The health of the housing market can also affect economic activity in other industries indirectly. For example, the \u201cwealth effect\u201d refers to how shifts in home prices, up or down, can influence consumer finances, confidence, and behavior. When home values and equity are rising, consumers who own homes tend to feel wealthier and may be more comfortable spending their money.<\/p>\n<p>The \u201ctransaction effect\u201d describes the increase in consumer spending that typically occurs when people move into new homes, which tends to generate demand for goods and services such as appliances, furniture, electronics, home improvement, and landscaping. On the other hand, extremely low affordability might influence younger consumers in a different way. When buying a home seems unattainable, it may cause them to give up on saving for that goal and shift to spending on other things.<\/p>\n<p>Given housing\u2019s importance to the broader economy, there is some concern that a prolonged period of high interest rates could continue to constrain home building and sales, cause home prices to fall, and damage consumer confidence. When the Federal Reserve begins to cut interest rates, mortgages should gradually follow suit, but that\u2019s not likely to happen until GDP growth slows and inflation is no longer seen as the larger threat.<\/p>\n<p>1, 4) National Association of Realtors, 2024<br \/>\n2) Freddie Mac, 2023<br \/>\n3) National Association of Realtors via Haver Analytics, 2023<br \/>\n5, 7) U.S. Census Bureau, 2024<br \/>\n6) U.S. Bureau of Economic Analysis, 2024<\/p>\n<p>This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. \u00a9 2024 Broadridge Financial Solutions, Inc.<\/p>\n","protected":false},"featured_media":1192,"template":"","meta":{"_acf_changed":false},"newsletter-category":[26],"class_list":["post-1191","newsletter","type-newsletter","status-publish","has-post-thumbnail","hentry","newsletter-category-may"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.3.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Housing Market Trends: Are They Helping or Hurting the Economy? - New England Trust<\/title>\n<meta name=\"description\" content=\"In Evanston, IL, Robard Flaremoor offers Financial Planning Services &amp; Financial Advice. \u2018Financial Services\u2019 from College Funding to Wealth Protection. \u2018Tax Services\u2019 include Tax Preparation, Tax Reduction, and Tax Management\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/staging8.dynaserverx.com\/newenglandtrust.com\/newsletter\/housing-market-trends-are-they-helping-or-hurting-the-economy\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Housing Market Trends: Are They Helping or Hurting the Economy? 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