U.S. housing sector gives economy a lift

October 26, 2012 02:30PM

The recovering housing sector is giving the economy a boost, but is not delivering the kind of results that would be seen if the economy were more robust, according to a new government report on economic growth cited by the Wall Street Journal.

The housing sector has positively contributed to the U.S. GDP for the past six quarters. In the third quarter alone, residential fixed investment accounted for a 0.33 percentage point growth in the GDP — an increase from 0.19 quarter-over-quarter and 0.03 year-over-year.

Both home construction projects and broker commissions help housing contribute to the overall economy. In addition, through the so-called “wealth effect” — defined as people spending more when their properties increase in value — it also has an effect on consumer spending.

According to Jan Hatzius, chief economist at Goldman Sachs Group, the wealth effect has not yet had a major impact on consumer spending, mainly because prices are only recently on the upswing. “However, the wealth effect is also starting to contribute to the improvement as the swing from continued house-price declines in 2010-2011 to house price gains in 2012 gradually makes itself felt in consumption,” Hatzius wrote in a report. [WSJ] — Zachary Kussin