How the Economy Impacts the Housing Market
The housing market is one of the major cornerstones of the American economy. Not only does real estate business provide revenue and jobs for millions of citizens, but it also contributes trillions to the national economy. In 2016, real estate construction alone contributed $1.2 trillion -- 6% of our gross domestic product (GDP). Prior to that, it had peaked in 2006, pre- housing market crash with $1.195 trillion. Back then, real estate construction was 8.9% of GDP.
The US is currently in its 103rd month of economic expansion, the country’s third largest economic expansion since the end of World War II. Since the beginning of the recession in 2008 the US economy has added 17.5 million jobs, largely recovering from the dramatic downturn. In 2017 unemployment had also dropped, peaking at 4.1%. This period of economic expansion is expected to continue in 2018, with predictions putting economic growth at around 3% in 2018.
Local Economics & Hampton Roads
Hampton Roads has a unique economy, standing on a three-legged stool. With the largest naval base in the country, located in Norfolk and multiple other bases scattered throughout the seven cities, defense and military spending make up one leg. The port and tourism form the other two legs.
Over the past 8 years, Virginia has recovered from the Recession well, adding over 400,000 jobs since 2010. Virginia’s economy is expected to continue its growth at a pace close to 2%. Virginia’s unemployment rates were even lower than national percentages, finishing 2017 out with 3.7%. This trend is expected to continue and Virginia is projected to have a 3.5% unemployment rate in 2018. Most of this growth and job creation is expected to come from the military; as defense spending goes up, the local economy grows faster and stronger. Growth is also expected amongst the civilian sector, though at a slightly slower pace (1.3%).
Housing is Only Going to Get Better
Economists have noted an “interesting phenomenon” -- the disparity between national and Virginian unemployment rates has lessened since the 2008 Recession. This closing gap reflects the relativity of the strength of the state’s economy compared to the nation’s. Post- housing market crash, both the nation and the commonwealth were at the bottom. Growth really started in 2013 and has only picked up speed in the years since.
All of this growth means more jobs and a recovering housing market for Hampton Roads. Forecasts from Fannie Mae and Freddie Mac -- both agencies backed by the federal government -- predict low interest rates for 2018. They put thirty-year mortgage rates at 3.7% for 2017, and 2018 is only expected to be around 3.8%.
Looking to the Future
So what does all of the growth mean and how do these percentages actually affect the real estate market in 2018 and beyond?
Economists are optimistic, expecting economic growth will continue and the housing market to continue recovering and growing. The tax bill and national budget currently stewing in Congress will certainly influence the rate of growth, but defense spending is not expected to decrease which is great news for Hampton Roads.
Currently defense spending is limited to $522 billion for 2018, but the caps will likely be removed as uncertainty in DC over the budget dissipates. Should this occur, economists predict a “significant positive impact” on Virginia’s economy in the third quarter as jobs in the military sector increase. Even before the caps are lifted, the Department of Defense (DOD) has committed to shipbuilding, ensuring job security for previously laid off employees.
As homebuyers and owners look to the future, they should do so with optimism. The better the national economy is, the better the local economy is, the better the housing market is -- and right now “better” is expected to keep getting even better.
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