How The U.S. GDP Growth Rate Shapes The Real Estate Market

How The U.S. GDP Growth Rate Shapes The Real Estate Market

The gross domestic product (GDP) is the total worth of all goods and services generated within a country's borders within a year. Economists mean GDP when they talk about the "size" of the economy.

What Is The GDP Growth Rate?

The GDP growth rate is the pace at which the economy grows or shrinks.

The growth rate provides insight into the state of the economy. In doing so, it shows figures that compare the latest quarter's or year's GDP to those of the prior quarter's or year's.

GDP measures economic output, so ideally, its growth must be healthy for the economy. A positive GDP growth keeps the economy in expansion for as long as feasible.

What Is The Latest GDP Growth Rate In The U.S.?

An increase of 2.0%  showed in the first quarter of U.S. GDP 2023. The Bureau of Economic Analysis (BEA) pegged 2022's fourth-quarter growth at 2.6%.

Among the reasons for the increase in U.S. GDP Q1 2023 growth was higher consumer spending and exports. It was partially offset by a slowdown in residential and nonresidential fixed investments.

BEA's chart shows the U.S. GDP by quarter from Q2 2019 to Q1 2023.

The first two quarters of 2022 showed negative growth rates. But note that the economy rallied in the third and fourth quarters of that year. It posted positive U.S. GDP growth rates for two consecutive quarters.

The positive growth in the latter half of 2022 helped allay fears about forecasts of an impending severe recession.


Note: Falling GDP growth rates in two successive quarters of a year often define a recession.


What The U.S. GDP Growth Rate Means For Real Estate

The relationship between the GDP growth rate and real estate in the U.S. is essential to understand, especially for home buyers and sellers. 

Personal income is affected by the growth rate. When the economy or GDP grows, so does disposable income and people's home-buying ability. 

Similar principles apply to commercial real estate, although there are some distinctions. When assessing their investments, commercial real estate investors consider predicted income. Although commercial property prices have their own cycle, economic growth continues to impact them since it increases demand for commercial spaces.

The best time to buy and sell property is when the U.S. GDP growth rate and personal incomes are increasing. 

Some think a recession is the best time for home buyers to invest for the reason that a recession typically triggers these events:

  • A drop in mortgage rates, as the Fed lowers the fed funds rate
  • Less demand for homes as personal income falls
  • Decrease in home prices 

Yet, a recession can pose many risks in buying or selling real estate. Buyers must be financially strong, have high credit standing, and possess stable incomes.

Why Should You Be Aware Of The U.S. GDP Growth Rate? 

The rate of GDP growth is an important economic indicator. It indicates which of the four economic cycle stages the economy is in: peak, contraction, trough, or expansion. 

Each of these stages reveals the state of the economy. Knowing these lets you know whether conditions in specific markets, such as real estate or stocks, are favorable or otherwise. Each stage can also tell you whether personal income is growing, businesses are hiring, or investments are robust.

As GDP impacts personal finances, investments, and job creation, those selling or buying real estate can look at GDP growth through the lens of an investor.

Investors examine a country's growth rate to determine whether or not to modify their asset allocation. They compare national growth rates to locate the best international prospects. They buy stock in companies or real estate based in fast-growing countries.

The Four Components Driving GDP Growth

Four components drive U.S. GDP growth, namely:

  1. Personal consumption
  2. Business investments
  3. Government spending
  4. Net trade (exports minus imports) 

Of the four, personal consumption is the primary driver. It includes an essential sector, retail sales.

The second driver is business investment, which includes inventory and construction.

Government spending is also a critical component in GDP growth. It encompasses Social Security benefits, military spending, infrastructure spending, and Medicare benefits. The government often increases expenditure in this category to help lift the U.S. economy from a recession.

Net trade forms the fourth component driving economic growth. It is a measure of total exports minus total imports. Exports increase GDP, while imports decrease it. So if a country has more exports than imports, it boasts a positive net trade, contributing to growth. On the other hand, higher imports than exports signify an unfavorable net exchange for a nation, which could reduce overall economic growth. 

In A Nutshell

It would benefit buyers and sellers of homes to study the effects of the U.S. GDP growth rate on the real estate market. 

An improving economy is conducive to investing in property since rising home-buying abilities and consumer confidence make it an opportune time to buy a house. 

Although there could be benefits to buying a home during a recession, such as reduced mortgage rates and lower home prices, there are also financial risks. 

Investors can make wiser choices, realign their asset allocation, and look into attractive international opportunities in fast-growing economies if they regularly monitor the GDP growth rate in the United States.


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