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Housing Sector Boosts Economy on Way to Recovery

Written by JD Esajian

Continued recovery in the housing sector has made a notable impact on our nation’s status and shows no signs of slowing down. Sizable growth in our economy was witnessed between late May and early July, as the housing sector’s upward trend was more than anticipated. According to a survey conducted by the Federal Reserve, 11 of the Fed banking districts reported “modest to moderate” growth, while Dallas and its current propensity for real estate reported “strong” growth for the second time in a row.

Housing construction, in association with asset appreciation, has combined to increase the overall economic status of our economy. Trends in the housing sector have affected subsequent industries, as lumber production, building materials and construction equipment have all been the beneficiaries of modest jumps in activity. Consumer spending has therefore surged, causing almost all districts to improve from their previous position.

An additional survey acknowledged that construction companies initiated fewer new home starts in June. However, permit applications for single-family houses rose to their highest level in five years. The five-year high was the culmination of a trend that lasted three consecutive months, topping out at 624,000 applications. This suggests that home construction should rebound in the coming months. The recent influx of permit applications is likely indicative of a prolonged housing recovery and should serve as an encouraging sign for the economy as a whole.

Further supporting the growth of our economy, is the Fed’s Beige Book survey. Loosely based on anecdotal reports from the business industry, the Beige Book survey acknowledged that hiring rates held strong or actually increased throughout most districts. Job gains have picked up this year, bolstering incomes and enabling consumers to spend more. Employers have added an average of 202,000 jobs a month so far this year, up from about 180,000 a month in the previous six months.

Five districts reported strong auto sales, up from just three in the previous report. Retail sales rose in nearly all districts except for New York. Each respective figure indicates that the economy is growing at an optimistic pace.

“Housing activity and prices seem likely to continue to recover, notwithstanding the recent increases in mortgage rates, but it will be important to monitor developments in this sector carefully,” said Fed Chairman Ben Bernanke in testimony Wednesday before lawmakers.