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Housing’s Large Economic Impact

Find out how much the real estate industry is affecting the gross state product for your area.

The impact can be direct or indirect, but housing is a significant driver of economic activity. In 2013, the value of construction as well as real estate and rental and leasing accounted for 16.8% of gross domestic product, but the impact is much larger in some states. As depicted below, in 2013 real estate tended to have a larger impact on the economies of states located on the coasts, while those in the Midwest, Southeast and Texas tended to have lower shares.

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At the local level, every home sale has an economic impact. The impact can be separated into three parts:

  • Expenditures related to the transaction such as commissions
  • Expenditures on improvements and services on the new home
  • A multiplier that accounts for how the expenditures listed above, which is income to the recipients, are spent in turn generating additional economic activity

Because commissions, remodeling and services are often related to the value of the home, states with higher median home prices tend to have larger economic impacts her home sale. For instance, the average economic impact of a sale in California during 2013 was $111,000 compared to $42,000 in South Dakota.

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Likewise, changes in the median home price tend to drive annual fluctuations in the economic impact that home sales have at the state level. In 2013, the strongest gains in economic activity per home sale were felt in Hawaii, Washington, DC, California, and Massachusetts. Conversely, some of the slowest growth was in Arkansas, Alaska, Kentucky, Pennsylvania, and Vermont. However, home sales and median prices experienced a sharp recovery in 2014 that has extended into 2015 with more than 90% of metro areas across the country experiencing price growth in the 2nd quarter of 2015 relative to the same period in 2014.  This robust trend will likely grow these figures in next year’s report. Updated reports for the economic impact of a home sale for each state are now available.

Ken Fears, Director, Regional Economics and Housing Finance

Ken Fears is the Manager of Regional Economics and Housing Finance Policy. He focuses on regional and local market trends found in the Local Market Reports and the Market Watch Reports . He also writes on developments in the mortgage industry and foreclosures.

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