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handle is hein.crs/govedee0001 and id is 1 raw text is: Congntsskmol Seseorch $ervk~e if{ tmiri~ th~ kQisIaFv ~mbstt ~ 4 Updated May 3, 2021 Introduction to U.S. Economy: Housing Market The Housing Market Real estate and thehousing market play an important role in the U.S. economy. Atthe individual level, roughly 65% of occupiedhousing units are owner occupied, homes are often a substantial source ofhousehold wealth in the United States, and housing construction provides widespread employment. At the aggregatelevel, housing accounts for a significant portionof alleconomic activity, and changes in the housing market can have broadereffectsonthe economy. Household Net Worth Purchasing a home is often one ofthe largest investments individuals make. Home ownership accounts for a significant portionofhouseholds' net worth in the United States. As of October 2020, owner-occupiedreal estate accounted for slightly more than a quarter ofhouseholds' net worth, according to Federal Reserve data. The share of households' net worth arising fromtheirhome has been relatively stable over thep ast several years, after declining significantly followingthe 2007-2009 recession. Employment Residentialconstructionis a significantindustry in the United States, and it employs a large number ofpeople. At the peakof the housing market bubble in 2006, residential constructionemployed more than 1 million individuals. However, as a result of the housing bubble bursting and subsequent recession, employment fell to a low of about 560,000 employees in May 2011. Since then, employment has picked up in this industry andreached about 872,000 by March 2021, according Bureau of Labor Statistics data. Housing and the Broader Economy The housing market is incorporated into gross domestic product(GDP), the prominent measure of economic activity, in two ways. First, GDP includes allspending on the constructionofnew single- andmulti-family structures, residentialremodeling, and brokers' fees, which is referred to as residential fixed investment. As of2020, spending on residential fixed investment was about $885 billion, accounting for about 4.2% ofGDP. Second, GDP includes all spending on housing services, which includes renters' rents and utilities and homeowners' imputed rent and utility payments. As of2020, spending on housing services was about $2.8 trillion, accounting for 13.3% of GDP. Taken together, spending within the housing market accounted for 17.5% of GDP in 2020. As shown in Figure 1, housing's share of GDP has generally trended upwards, with the notable exceptionof the housing market crashin 2007. Between 2000 and 2005, residential investment grew rapidly before declining even more rapidly as the housing bubble burst. Since then, https://crsrept residential investmenthas remained wellbelow its peak both in real terms and as a percentage of GDP. Despite a steep drop in totalhousing spending, both in real terms and as a percentage of GDP, spending onhousing services continued to rise as a percentage of GDP through this period. Housing's share of GDP has stillnot reached its 2005 peak. Figure 1. Total Spending in Housing Market As a percentage of GDP 1i4 19s3 [95 195s 197 1 1977 1983 1989 1995 2001 2007 2M13 2019 Source: Bureau of Economic Analysis, National Income and Product Accounts, Table 1.1.5, and Table 2.3.5. Housing's Indirect Impact on the Economy The housing market can play an important role in the broader economy as well, as evidencedby the housing bubble that precipitated the recession of 2007-2009. Housing prices can impact residential investment and therefore affect economic growth. Rising home prices likely encourage additionalconstruction spending to take advantage ofhigher prices, leading to more robust economic growth. A decline in housing prices is likely to depress construction spending, leading to more anemic economic growth. Fluctuations in the housing market, particularly housing prices, can have broader effects on the economy throughso- called wealth effects. An increasein housing value encourages homeowners to spend more than they do at other times for a variety ofreasons, including higher confidence in the economy, increased home equity for homeowners to borrow against, and higher rentalincont. A decrease in prices results in the opposite. In the United States, consumer spending makes up roughly 70% of the economy; therefore, changes in housing wealth can result in significant changes in economic growth. Monetary Policy and the Housing Market Federal Reserve decis ions may also affect the housing market through thecostoffmancing ahome purchase. Most Americans take outa mortgageto purchase ahome, and .congress.gov

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