It seems like each year we're worried about a recession. 

For reference, a recession is when the economy (measured in GDP) declines for 6 months in a row (in broad terms). 

This technically happened in 2022, but we didn't get the official designation of "recession" as the decline didn't meet the full range of requirements.

Also, the "expert" economists said there was a 100% chance of a recession in 2023.

That never happened..

Show's you not to believe everything you see on the internet. 

Rather than worrying about a recession, I suggest we watch the home builders and new home construction activity for clues on how the economy is doing.

The value of home sales on economic growth

According to the National Association of Realtors (NAR), in 2023 the real estate industry accounted for nearly 18% of the national economy. 

This comes from a combination of income generated through real estate transactions, furniture/house item sales, and job creation related to the industry activity. 

Further, new home construction is specifically called out as a major contributor of over half the value.

These numbers show us just how crucial our real estate market is to the economy.

Also, we need to recognize this Isn't a home price thing where prices must be rising non-stop for value to be created. 

Home sales are the important factor that help generate economic growth.

How is the housing market in your state affecting the local economy?

Now, the thing about a recession is it's a national event. Not all states are impacted the same.

Local markets perform differently depending on the makeup of their local economies.

With that in mind, NAR also publishes the economic impact of the real estate market on all 50 states each year. 

Focusing on Florida, we can see that most of the dollar value created by real estate is basically the same as the national numbers:

What is different, though, is that the real estate industry makes up 24% of the Florida economy.

Real estate is even more significant to our local economy here in the Sunshine State.

And active real estate agents know that we've been in a real estate recession since 2022. 

Not one where home prices are falling, but one where home sales have declined ~30% since the peak in 2021.

Is Florida's economic growth stronger than the nation's?

In general, Florida's economy has done relatively well compared to the national numbers.

Over the past 5 years, we've averaged 0.5% higher growth in our GDP compared to the US GDP:

Part of the reason why Florida has outperformed the nation is the strength of the new home construction industry. 

After essentially selling out of existing homes in 2021, a huge number of homeowners are locked Into their house at 3% rates.

With mortgage rates rising from 3% to 7%, new home builders have made a huge comeback.

In fact, 1 out of every 3 homebuyers are choosing new construction currently given the incentives and lower-than-market interest rate options. 

New construction offers more affordability when it comes to home prices, interest rates, and homeowners insurance for a winning combination for home buyers.

It's also a watch out for home sellers if they're near any new construction communities.

You have to factor in the incentives the builders are offering when setting the price of your existing home.

Finding Opportunity

There are a few main takeaways to keep in mind here:

• 😱 It's easy to fear things that aren't likely to happen. It doesn't mean they can't happen, but recessions are relatively rare and overall economic growth is more likely each year. Plan for the probably, not the possible.
  
  
• 🎢 The market can change quickly. It's wild to realize that home builders went from struggling to thriving in just 2 years as interest rates increased. We can't assume the market will stay the same forever and need to stay nimble as we business plan each year. Watch for emerging trends in your market.
  
  
• 🏗️ Home builders may remain in the driver's seat. There's a lot of people expecting mortgage rates to decline, but I think there are plenty of reasons to believe it's not likely that we'll go below 5-6%. This makes the incentives builders can offer more valuable and keeps their advantage in the market.
  
  
• 👀 Watching homes sales will give you a read on a big part of the local economy. Instead of watching the news for national home sales numbers or how the US GDP is changing, focus on local real estate activity to keep an eye on local growth.

Remember, there are a number of markets that don't have a strong new construction option.

Fortunately, Florida is in a good position to continue to grow given the strong presence of new home builders and room to grow.

Real estate agents can better advise their clients by keeping their finger on the pulse of builders in their area to help home buyers and sellers plan their moves accordingly. 

Don't let fear consume you. Keep pushing and finish 2024 strong! 🚀

Dr. Alex Stewart
Founder