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1 1 (January 3, 2023)

handle is hein.crs/govejzu0001 and id is 1 raw text is: a Congressional Research Service informing the legislative debate since 1914 Updated January 3, 2023 Introduction to U.S. Economy: Housing Market The Housing Maret Real estate and the housing market play an important role in the U.S. economy. At the individual level, roughly 65% of occupied housing units are owner occupied, homes are often a substantial source of household wealth in the United States, and housing construction provides widespread employment. At the aggregate level, housing accounts for a significant portion of all economic activity, and changes in the housing market can have broader effects on the economy. Household Net Worth Purchasing a home is often one of the largest investments individuals make. Home ownership accounts for a significant portion of households' net worth in the United States. As of the third quarter of 2022, owner-occupied real estate accounted for slightly more than a quarter of households' net worth, according to Federal Reserve data. The share of households' net worth arising from their home has been relatively stable over the past several years, after declining significantly following the 2007-2009 recession. Employment Residential construction is a significant industry in the United States, and it employs a large number of people. At the peak of the housing market bubble in 2006, residential construction employed 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 (apart from a brief decline during the 2020 recession) and reached about 903,000 by November 2022, 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 all spending on the construction of new single- and multi-family structures, residential remodeling, and brokers' fees, which is referred to as residential fixed investment. As of 2021, spending on residential fixed investment was about $1.1 trillion, accounting for about 4.8% of GDP. Second, GDP includes all spending on housing services, which includes renters' rents and utilities and homeowners' imputed rent and utility payments. As of 2021, spending on housing services was about $2.8 trillion, accounting for 11.9% of GDP. Taken together, spending within the housing market accounted for 16.7% of GDP in 2021. As shown in Figure 1, housing's share of GDP has generally trended upwards, with the notable exception of the housing market crash in 2007. Between 2000 and 2005, residential investment grew rapidly before declining even more rapidly as the housing bubble burst. Since then, residential investment has remained well below its peak both in dollar terms and as a percentage of GDP. Despite a steep drop in total housing spending, both in dollar terms and as a percentage of GDP, spending on housing services continued to rise as a percentage of GDP through this period. Housing's share of GDP has still not reached its 2005 peak. Figure 1. Total Spending in Housing Market As a percentage of GDP a 14 21% / < 1941 242% 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 evidenced by 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 additional construction spending to take advantage of higher 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 through so- called wealth effects. An increase in housing value encourages homeowners to spend more than they do at other times for a variety of reasons, including higher confidence in the economy, increased home equity for homeowners to borrow against, and higher rental income. 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.

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