The Economic Impact of Buying a Home

The Economic Impact of Buying a Home

With businesses starting to slowly open back up again in some parts of the country, it’s important to understand how housing can have a major impact on the recovery of the U.S. economy. As we’ve mentioned before, buying a home is a driving financial force in this process. Today, many analysts believe one of the first things we’ll be able to safely bring back is the home building sector, creating more jobs and impacting local neighborhoods in a big way. According to Robert Dietz in The Eye on Housing:

 “The pace of new home sales will post significant declines during the second quarter due to the impacts of higher unemployment and shutdown effects of much of the U.S. economy, including elements of the real estate sector in certain markets. However, given the momentum housing construction held at the start of 2020, the housing industry will help lead the economy in the eventual recovery.”

The National Association of Home Builders (NAHB) notes the impact new construction can have on the job market:

“Building 1,000 average single-family homes creates 2,900 full-time jobs and generates $110.96 million in taxes and fees for all levels of government to support police, firefighters and schools, according to NAHB’s National Impact of Home Building and Remodeling report.”

These employment opportunities, along with the home purchase, drive the economy in a major way. The National Association of Realtors (NAR) recently shared a report that notes the full economic impact of home sales. This report summarizes:

“The total economic impact of real estate related industries on the state economy, as well as the expenditures that result from a single home sale, including aspects like home construction costs, real estate brokerage, mortgage lending and title insurance.”

Here’s the breakdown of how the average home sale boosts the economy:Why the Housing Market Is a Powerful Economic Driver | MyKCM

As noted above in the circle on the right, the impact is almost double when you purchase new construction, given the sheer number of workers it requires to design, build, equip, and finalize the sale of the home. The NAHB paints a clear picture of these roles:

“The NAHB model shows that job creation through housing is broad-based. Building new homes and apartments generates jobs in industries that produce lumber, concrete, lighting fixtures, heating equipment and other products that go into a home remodeling project. Other jobs are generated in the process of transporting, storing and selling these products. Additional jobs are generated for professionals such as architects, engineers, real estate agents, lawyers and accountants who provide services to home builders, home buyers and remodelers.”

The same NAR report also breaks down the average economic impact by state:Why the Housing Market Is a Powerful Economic Driver | MyKCM

On an emotional level, what’s most important for today’s consumers to feel confident about is the safety component that goes into the process. Mitigating the risk of essential personnel at this moment in time is more crucial than ever as we all aim to reduce the spread of the coronavirus. Fortunately, the NAHB has put immense effort into a plan that prioritizes the health and safety of home builders and contractors:

“This is why NAHB and construction industry partners have developed a Coronavirus Preparedness and Response Plan specifically tailored to construction job sites. The plan is customizable and covers areas that include manager and worker responsibilities, job site protective measures, cleaning and disinfecting, responding to exposure incidents, and OSHA record-keeping requirements.”

Bottom Line

Buying a home is a substantial economic driver today, and when new construction picks back up again, it will be an even stronger recovery force throughout the country. If you’re in a position to buy a home this year, you can have a significant impact on your local neighborhoods and safely make the move you’ve been waiting for. It’s a win-win.

How Owning a Home Can Make You Happier

How Owning a Home Can Make You Happier

Homeownership comes with all sorts of struggles that renters never deal with. If you rent and your roof leaks, for example, a call to your landlord fixes that (or it should). You don’t have to worry about unexpected expenses, fluctuating property values, or much of anything else.

Despite the advantages of renting, 93% of Americans said they’re happier after buying a home, according to the latest Bank of America Homebuyer Insights Report. In addition, 83% said they would never go back to renting.
“The latest Homebuyer Insights Report confirms what we suspected: Owning a home makes us happier for two reasons — building personal wealth and making valuable memories,” said AJ Barkley, Bank of America’s Head of Neighborhood Lending, in an email to Millionacres.

Most homeowners credit their happiness to an emotional attachment to their home, but, interestingly, they are also more satisfied with their financial well-being than non-owners. Ultimately, no matter how Americans define home, they agree it is a way towards a more stable, happier, way of life.

If it makes you happy

Homeownership has long been a part of the American Dream. The idea that you’re supposed to buy a home as you start a family has become ingrained in American culture. It’s a right of passage that shows a level of financial success and emotional maturity, as it’s not always an easy process to navigate.

More homeowners (77%) reported being satisfied with their financial well-being than non-owners (42%), according to the report. In fact, over two-thirds of respondents said that “their relationships with family and loved ones have changed since purchasing a home.” 50% said they felt “a restored sense of family pride and attachment to loved ones.”

Essentially, even though owning a home comes with a certain level of stress, it checks off other boxes that make the stress worth it. It’s not just about the perceived financial security that owning a home brings, it’s also about putting down roots and having a base for your family.

How to be even happier

Nothing ruins happiness like financial strain. That’s why homebuyers should act rationally and not let emotions cause mistakes that could have a long-lasting impact.

The first thing to do is make sure you can afford the home you buy. Many recommend the 28% rule. That means no more than 28% of your gross income should go to paying your mortgage each month. Lenders may use that number to consider whether to approve your mortgage. Of course, if you spend less, that could be even better.

If you buy a home you can easily afford, that leaves you money for the future if things go wrong. It also lets you build up an emergency fund and replenish savings depleted from a down payment.

People often assume their income will stay the same or keep climbing and are tempted to buy the most expensive house they can afford. That’s a dangerous decision, as nobody can predict when they might face a personal crisis that impacts their income.

If you want your home to make you happy in the long term, make sure it never becomes a financial burden. One way to do that is to aim in the middle or toward the bottom of what you can afford when making the purchase.

This post originally appeared on Millionacres.

3 Tips for Making Your Dream Home a Reality

3 Tips for Making Your Dream Home a Reality

Automate Your Down Payment Savings

Set up your checking account to automatically save a certain amount each month.

Build Your Credit History and Keep it Clean


Pay any loans or credit cards you may have on time.  Don’t use more than 30% of the credit available to you.

Practice Living on a Budget


95% of first-time buyers were willing to make sacrifices to buy their home faster such as new clothes, a new car, and traveling.

Dreaming of a new home in the new year?

We can help make sure you’re making all the right moves to make homeownership your reality.

Matthew Gardner’s 2020 Real Estate Forecast

Matthew Gardner’s 2020 Real Estate Forecast

It’s that time of year when Windermere’s Chief Economist Matthew Gardner dusts off his crystal ball and peers into the future to give us his predictions for the 2020 economy and housing market.

As we head toward the end of the year, it’s time to recap how the U.S. economy and housing markets performed this year and offer my predictions for 2020.

U.S. Economy

In general, the economy performed pretty much as I expected this year: job growth slowed but the unemployment rate still hovers around levels not seen since the late 1960s.

Following the significant drop in corporate tax rates in January 2018, economic growth experience a big jump. However, we haven’t been able to continue those gains and I doubt we’ll return to 2%+ growth next year. Due to this slowing, I expect GDP to come in at only +1.4% next year. Non-residential fixed investment has started to wane as companies try to anticipate where economic policy will move next year. Furthermore, many businesses remain concerned over ongoing trade issues with China.

In 2020, I expect payrolls to continue growing, but the rate of growth will slow as the country adds fewer than 1.7 million new jobs. Due to this hiring slow down, the unemployment rate will start to rise, but still end the year at a very respectable 4.1%.

Many economists, including me, spent much of 2019 worried about the specter of a looming recession in 2020. Thankfully, such fears have started to wane (at least for now).

Despite some concerning signs, the likelihood that we will enter a recession in 2020 has dropped to about 26%. If we manage to stave off a recession in 2020, the possibility of a slowdown in 2021 is around 74%. That said, I fully expect that any drop in growth will be mild and will not negatively affect the U.S. housing market.

Existing Homes

As I write this article, full-year data has yet to be released. However, I feel confident that 2019 will end with a slight rise in home sales. For 2020, I expect sales to rise around 2.9% to just over 5.5 million units.

Home prices next year will continue to rise as mortgage rates remain very competitive. Look for prices to increase 3.8% in 2020 as demand continues to exceed supply and more first-time buyers enter the market.

In the year ahead, I expect the share of first-time buyers to grow, making them a very significant component of the housing market.

New Homes

The new-home market has been pretty disappointing for most of the year due to significant obstacles preventing builders from building. Land prices, labor and material costs, and regulatory fees make it very hard for builders to produce affordable housing. As a result, many are still focused on the luxury market where there are profits to be made, despite high demand from entry-level buyers.

Builders are aware of this and are doing their best to deliver more affordable product. As such, I believe single-family housing starts will rise next year to 942,000 units—an increase of 6.8% over 2019 and the highest number since 2007.

As the market starts to deliver more units, sales will rise just over 5%, but the increase in sales will be due to lower priced housing. Accordingly, new home prices are set to rise just 2.5% next year.

Mortgage Rates

Next year will still be very positive from a home-financing perspective, with the average rate for a 30-year conventional, fixed-rate mortgage averaging under 4%. That said, if there are significant improvements in trade issues with China, this forecast may change, but not significantly.

Conclusion

In this coming year, affordability issues will persist in many markets around the country, such as San Francisco; Los Angeles; San Jose; Seattle; and Bend, Oregon. The market will also continue to favor home sellers, but we will start to move more toward balance, resulting in another positive year overall for U.S. housing.

About Matthew Gardner:

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

This post originally appeared on the Windermere.com Blog.