Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

U.S. Housing Market Now Providing a Tailwind to Economic Growth

Housing-Market / US Housing Jan 16, 2014 - 03:53 PM GMT

By: PhilStockWorld

Housing-Market

Courtesy of Doug Short: While residential investment represents a small portion of gross domestic product (GDP), housing is perhaps one of the most cyclical sectors of the economy and tends to lead economic swings by months to years. As such, keeping a close eye on housing provides a valuable insight into future economic trends. While housing represented a major headwind to the economy after the housing bubble burst, as I show below, it is now providing a major tailwind instead.


At the peak in 2005 housing represented 6.26% of GDP, the highest level seen in over a half century. Once the housing bubble burst and things came to a standstill, housing activity relative to GDP fell to levels never seen before and hit a low of 2.22% in early 2011.

Source: Bloomberg

After the late 2005 peak housing?s positive contribution to GDP began to decline and by the middle of 2006 began to subtract from GDP. Then, from late 2006 through much of 2009, housing was shaving roughly 1% off of GDP. As housing began to stabilize in 2010 and 2011, it stopped dragging the economy down and, beginning in 2012, actually started adding to GDP growth. As of last year, 2013, housing has added roughly 0.40% to GDP each quarter and now represents a tailwind to the economy.

Source: Bloomberg

The current improvement in the housing sector is no small thing since it plays a key role in the economy. As such, it also acts as a leading economic indicator. A pickup in housing activity is followed by improvements in many other areas of the economy down the road. One direct beneficiary of this is state and local governments?an area that has also been a drag on the economy as they’ve been forced to tighten their belts and cut back on expenditures.

Historically, home price increases lead property tax revenue increases by four years, and based on the rise in home prices over the last few years the growth in state and local property tax revenues are likely to rise from the current 1.6% annual growth rate to 10% growth by the middle of 2016.

Source: Bloomberg

The recent stabilization in property tax revenue and ongoing recovery in housing and other areas of the economy are beginning to turn around the financial situation of state and local governments as the following Bloomberg article illustrates.

States Cut Taxes, Increase Spending as Economy Improves

U.S. states are cutting taxes and increasing spending as the improving economy lifts their revenue, marking a recovery from the financial strains that persisted after the recession.

Spending by state governments is set to climb 3.8 percent to $722 billion during the current budget year, the fourth straight annual increase, according to a report released today by the National Association of State Budget Officers. With more money on hand, 23 states cut taxes or took other steps that reduced revenue, and 42 boosted funding for schools.

?State fiscal conditions are modestly improving,? the Washington-based budget officers group said in the report. ?Signs of fiscal distress continue to subside, and most states expect revenue and spending growth in fiscal 2014.?

The financial gains are lifting a drag on the economy after the 18-month recession that ended in 2009, during which states eliminated jobs and cut spending to make up for declining revenue. In the six months through September, U.S. economic growth advanced partly because of increases in state and local government spending, according to the Commerce Department.

This year, 16 states faced shortfalls totaling $6.4 billion. That?s down from $37 billion a year earlier, according to the budget officers? report. For the next fiscal year, ten states are forecasting shortfalls, amounting to $4.4 billion.

As housing represents the largest financial asset for consumers, swings in housing prices are also correlated with swings in consumer sentiment. Even though the recession ended in the middle of 2009, consumer sentiment, as measured by the University of Michigan Consumer Sentiment Index, remained near multi-decade lows. It was only after housing prices stabilized in 2010 that sentiment began to improve.

Source: Bloomberg

An improvement in consumer sentiment is important since rising consumer confidence is associated with rising levels of consumer spending. Given consumption is more than 70% of GDP, the domino effect of rising home prices translates into higher consumer sentiment which then leads to greater consumption and then to higher GDP growth. This linkage can be easily seen below with the high correlation between the Michigan Consumer Sentiment Index (black line), consumer consumption (red line), and GDP growth rates (blue line).

Source: Bloomberg

Source: Bloomberg

Summary

Since 2005, housing has swung from one side of the pendulum to the other and since 2010 has begun a slow and gradual healing process. Housing is now adding to GDP growth and replenishing state and local government coffers through higher property taxes and leading to an improvement in consumer sentiment. The greater level of optimism seen by the consumer will translate into higher consumption rates and thus higher GDP rates. At the current 3.17% share of GDP, housing is still well below the historical 4.4% average and far below prior peaks near 5.5%-6%, and thus will likely continue to be a tailwind for the economy for some time. That said, housing represents roughly a third of the CPI Index and will likely cause inflation rates to pick back up, which should be monitored as it will eat into discretionary spending.

Originally posted at Financial Sense

(c) PFS Group
PFS Group

- Phil

Click here for a free trial to Stock World Weekly.

www.philstockworld.com

Philip R. Davis is a founder of Phil's Stock World (www.philstockworld.com), a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders. Mr. Davis is a serial entrepreneur, having founded software company Accu-Title, a real estate title insurance software solution, and is also the President of the Delphi Consulting Corp., an M&A consulting firm that helps large and small companies obtain funding and close deals. He was also the founder of Accu-Search, a property data corporation that was sold to DataTrace in 2004 and Personality Plus, a precursor to eHarmony.com. Phil was a former editor of a UMass/Amherst humor magazine and it shows in his writing -- which is filled with colorful commentary along with very specific ideas on stock option purchases (Phil rarely holds actual stocks). Visit: Phil's Stock World (www.philstockworld.com)

© 2014 Copyright  PhilStockWorld - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

PhilStockWorld Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules