September
23

Ever wonder what kind of impact a home purchase has on the local economy? Real estate costs, remodeling, buying new furniture, etc., all of those costs that go into buying an existing home, they have a direct impact on the local economy.

The National Assocation of Realtors conducated a study to find out just how much of an impact on the economy this purchase has. The NAR used the national median price of an existing home in 2008 for this research ($198,100), and here’s what they found:

Each home sale at the median price generates $63,101 of economic impact. This number is made up of the following…

Real Estate Industries: $17,829
Commissions, fees and moving expenses, or income to real estate industries, associated directly with the purchase are about nine percent of the median home price ($198,100).

Furniture/Remodeling: $5,331
Average furniture and remodeling expenses following an existing home purchase are right around $5,000, based on a Harvard Joint Center for Housing Studies figure (Improving America’s Housing 2003. Measuring the Benefits of Home Remodeling. Harvard Joint Center for Housing Studies Report: R03-1).

Mutliplier: $11,117
The Multiplier Effect accounts for the fact that income earned in other sectors of the economy as a result of a home sale is then re-circulated into the economy. The National Association of Realtors’s macroeconomic modeling suggests that the multiplier is between 1.34 and 1.62 in the first
year or two after an autonomous increase in spending.

What this means is that each dollar increase in direct housing activity will increase the overall GDP by $1.34 to $1.62.

New Housing: $28,825
Because existing home sales have historically been associated with new construction at a ratio of eight to one, we add in one-eighth of the new home price (the 2008 median new home price is $230,600, per the Census Bureau) to approximate the value of this construction being added to GDP.

The existing home price is not directly added to the economy because the home was produced or constructed in the past. Only the value-added service related to the sale of an existing home is included. When a new home is constructed, the entire price is added to the value of GDP because it is new production.

Total Economic Impact
So, the total Economic Impact of an existing home purchase =
$17,829 (Real Estate Industries) +
$5,331 (Furniture/Remodeling) +
$11,117 (Multiplier) +
$28,825 (New Housing),
for a grand total of $63,101.

Local Economic Impact Higher
The 2008 national median home price used in this study is about $82,000 less than the local median price of existing homes in Whatcom County ($280,000 in August). This tells us that the local economic impact of purchasing an existing home should be significantly higher than the $63,101 number found in this study.

Thanks to Rick DeLuca for the summary of this NAR study.

September
4

Recent national housing stats show an upward trend in the number of pending home sales (where the contract has been signed but the transaction has not closed). This article from the National Association of Realtors points out that this trend has actually been going on for the past six months.

West up; Northeast and Midwest down
According to the NAR, July pending home sales across the country were 12.7 percent higher than the same period in 2008, and they were also at their highest point since June 2007. Regionally, this trend is being buoyed by pending home sales in the West (up 12.1% from June, and 20% above this time last year), as pending home sale numbers in the Northeast and Midwest saw month-over-month decreases.

Tax credit motivating first-time homebuyers
As the article points out, a significant contributor to this trend is the high number of first-time home buyers who are entering the market to take advantage of the $8,000 tax credit available to them. As this deadline looms, that could have an impact on the high number of pending home sales we’re now seeing.

Future sales indicator
Pending home sales are often used as an indicator of future home sales. While all pending home sales may not close, this index is generally seen as a reliable indicator of housing market activity. More pending home sales means more buyers are in the process of closing on a home, so this is certainly encouraging news.

Inman News, a great resource I use regularly, also reported on this trend. You can read their article here.

Local stats should be in soon. So stay tuned to find out if this trend is occuring here locally as well.