Consumer spending accounts for 70 percent of gross domestic product.
New home sales represent 5% of the GDP.
Car sales at the highest rate since 2008.
In past articles, I have focused on several key economic indicators to watch as the Bay Area real estate markets race out the economic down turn of the past five years; 1) New home sales; 2) Home prices; 3) Home Equity; 4) Mortgage interest rates; and, 5) Home rental rates. All five of these indicators are going in the correct direction for Bay Area real estate in 2013. However, there is one other indicator to add to my list that I was not paying attention to – new car sales.
Earlier this month we made predictions of how the Bay Area economy would turn out. Now, the two indicators we are closely watching that are impacting Bay Area real estate are; 1) The acceleration of new home construction; and, 2) The dramatic increases in new car sales. Who would have imagined that the rate of car sales was such a key indicator of having a healthy Bay Area economy? Below is just a summary of what we are noticing regarding these two key indicators.
In doing our research I was ignorant of the fact that new home sales have a bigger impact on GDP than do existing home sales, even though sales of new homes make up about 15 percent of the entire housing industry. A leading economist recently stated, “There is a lot more spending that goes on … when you construct a new home rather than selling an existing home, where you simply switch titles. We get much more of a bang for the buck,” says Bernard Baumohl – Economic Outlook Group.
“The new-housing market makes up about 5 percent of the GDP. That doesn’t sound like much, but we’re talking about all of the components that go into building a home: copper, wood, gravel workers, all that together makes up 5 percent,” Baumohl says. And, we are at the highest levels of new home sales in Bay Area real estate since 2006! This is really good news!
Baumohl further stated that when you consider all the buying that people do before they move into their new homes – furniture, appliances and electronics, for instance – all of that spending activity increases the new-home market to about 25 percent of the GDP according to author Baumohl. And, all consumer spending represents 70% of the GDP. That is why it has been such a tough and long recession. Consumers have not been spending.
Car and light truck sales are up 15% from a year ago – the highest growth in auto sales in more than four years according to AutoData Corp. Two of the factors driving car sales is cheap interest rates for financing and incentives from the car companies.
Another factor leading car sales is the increase in the age of cars on the road. Car sales have been down significantly since 2007. So, with the Bay Area racing out of recession car sales are one of the purchases that have greatly accelerated. As construction spending increases large pickup truck sales increase. In fact, there was a 1.5% increase in large pickups just in November – much higher than experts predicted. The dramatic jump in auto and truck sales is across all manufacturers, both U.S. and foreign car makers.
The next time you notice a new car on the road or notice carpenters framing a new home development, put a smile on your face because these are two of the key indicators for a health Bay Area real estate market in 2013. And, contact us anytime for a FREE pricing report on your home. Until next time…Jim Walberg