Home sales, homeownership play major role in local economy

By KRISTI BAILEY

It’s almost time to tie a bow on June’s observance of Homeownership Month. Throughout the month, local and national real estate professionals have focused volunteer and information efforts on promoting and celebrating this cornerstone of the American Dream.

For this last pass, let’s look at how real estate affects the Northeast Tennessee economy. When asked about the economy, many will point to the stock market. That is not a good measure because it is about how investors are speculating. The truth of the matter is more peoples’ wealth is centered on their home – not their 401K, IRA, or stock account. Real estate is the time-proven way most people – most families – build wealth.

The Northeast Tennessee Associations of REALTORS® (NETAR) annual Trends Report lists the total sales volume for our region. In 2016, it moved past the $1 billion mark. It has increased every year, since. But there’s more the economic impact of real estate than the sale of properties listed on the local Multiple Listing Service (MLS).

There’s more to it because NETAR’s Trends Report doesn’t include commercial real estate sales, new home sales, or the sales of properties not listed on the MLS.

Last year, there were 7,608 residential resales in the region. Those sales had a volume of $1.4 billion. When you sweep in commercial real estate, new home sales, and the other residential sales, the number bounces to a little more than 12,000 with a sales volume of $2.3 billion. That number comes from deed transfer data compiled by the Appalachian Highlands Regional Dashboard for Real Estate Economics. And it’s still only the tip of the iceberg.

Each year the research department at the National Association of REALTORS® (NAR) compiles data from the Bureau of Economic Analysis, the U.S. Census, the National Association of Home Builders’ (NHBA), and macroeconomic advisors for a report of the total effect of residential real estate on state economies. The current study shows real estate industry accounted for $57.2 billion or 15% of the state gross state product in 2019. If you reverse engineer the study’s methodology and apply it locally, you come up with a comparable share for the gross domestic product (GDP). It works out to a total economic impact of a little over $65,000 per residential home sale.

Here’s the quick explanation of how the study comes to that number.

  • Income generated from real estate industries is about 9 % of the median home price for each sale. The study assumes moving expenses and income to real estate industries, associated directly with the purchase.
  • Expenditures related to the home purchase include the NSHB’s analysis that furniture and remodeling expansion, adding about $4,650 to each sale.
  • Multiplier effect accounts for the income earned and spent in other sectors of the economy from home sales.
  • New home construction. Typically, one new home is built for every six existing home sales. So, for every existing home sale, 1/6 of the new home’s value is added to the economy.

Remember, that analysis is for the impact of residential real estate. It does not include commercial real estate, but it does add context to an essential part of the local economy.

It is a critical point today because while the real estate industry should make a quick rebound from the coronavirus economic fallout, that may not be the case for the rest of the economy. Some think it will take 16 to 18 months to repair the damage. During that period, real estate will be doing its share. The bottom line is homeownership helps everyone individually, socially, culturally, and economically. It is, indeed, the cornerstone of the American Dream.

NETAR is the voice for real estate in Northeast Tennessee. It’s the largest trade association in Northeast Tennessee, Southwest Virginia region representing over 1,200 members and 100 affiliates involved in all aspects of the residential and commercial real estate industries.

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Kristi Bailey

2020 NETAR President

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