Housing Set to Lead the Economy Forward

Housing matters, and it matters more than most people realize. Yes, money is made on every sale, because sales directly generate commissions and lending fees. Of course, there is so much more to it than that.

Housing has a powerful cascading effect. National Association of Home Builder data show that residential investment averages 5% of gross domestic product (GDP). That's a lot of economic activity when you consider that 5% of $17 trillion is $340 billion. When ancillary services and goods – remodeling, furnishings, appliances, maintenance, improvements, etc. – are factored in, the percentage rises exponentially. The NAHB puts the percentage of total contribution at roughly 17% of GDP. Seventeen percent of $17 trillion is $2.9 billion.

To be sure, existing homes generate more sales transactions and more ancillary demand in aggregate. But new homes provide the biggest GDP bang for the buck. That's why we are always encouraged to read good news on new homes.

The news on home-builder sentiment is certainly good. The Wells Fargo/NAHB Home Builder Sentiment Index continues to hover near a multi-year high. The index remained unchanged at 60 for July. This is the strongest level since November 2005 and signals sustained strength for the new-home market.

Mortgage activity also supports a bullish outlook. Purchase mortgages for new homes continue to trend higher. The latest survey from the Mortgage Bankers Association shows new-home purchase activity was up 1% in June. Year over year, new-home purchase lending is up 8%.

So, housing is looking very stout at the mid-point of 2015. This really isn't a surprise. A strengthening housing market was one of our January prognostications for 2015. At this point, it's just a matter of waiting for the rest of the economy to catch up with housing.

Information provided by Jessica Regan.

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