Real estate shares a role as one of the largest components of our national Gross Domestic Product (GDP) which is a fancy way of saying our national revenue stream. As a primary component, we would be foolish to ignore this segment of the economy when we are looking at strategies. In fact, if we understand the real estate market, we will find that there are not only a lot of opportunities for us in this space, but real estate is a strong indicator of economic health and predictive trending.
Not Just One Real Estate Market
First, let’s look at the three different real estate segments. Residential is a simple way of saying all of the single family and multi-family (1-4 units) that will be bought and sold during the year. One of the reasons it is critical to look at the residential real estate segment though is not just the purchase and sale of new and existing homes, but the construction of new homes to satisfy demand in the market.
The dollars turned over through construction are significant, but if we look past new housing starts we find some interesting data. New housing starts have been one of our main indicators of economic health. From this information we can understand the sentiment behind a major market driving force, but in today’s economy, we have to look beyond housing starts directly into the demand equation that dictates housing starts. Here we begin to do this.
The next segment is commercial. For our purposes, we will divide commercial into two components – standard commercial and multi-family (more than 4 units). The reason it is important to look at these components separately is not because of the dollar difference, but because of the different message each of these segments provides. One represents corporate growth (or shrinkage) and the other represents home rental vs home ownership across a broad spectrum. These are cross-over segments. We look at both as an aggregate to derive overall commercial activity, but then we must segregate multi-family to understand rental demand metrics.
Housing related expenditures including construction, transactions and related services makes up roughly 15% to 19% depending on the year and activity. This is a significant portion of our GDP which is a little less than $18 trillion (unfortunately less than our current national debt) so it follows that, without this metric, any economic discussion would be incomplete.
In the real estate section we discuss several key aspects of real estate and the real estate market. There are two obvious divisions which are residential real estate and commercial real estate. Within those two categories are overlapping subcategories including investor, owner occupants, developers / contractors and brokers.
In the articles and newsletter to follow, we will explore each of these categories more in depth. Signup for the newsletter today.