Home sales play major role in the local economy

Kristi Bailey 2020 NETAR President

Ask anyone how they think the economy is doing and many will point to a stock market update. That’s a good measure of how investors are speculating, but not of the economy.

The truth of the matter is more peoples’ wealth is centered on their home – not their 401K, IRA, or stock account. That’s because real estate has been, and remains, the foundation of wealth building for the middle class and a critical link in the flow of goods, services, and income for millions of Americans. Since it accounts for nearly 18 percent of the nation’s economy real estate is also clearly a significant driver of the U.S. and local economies.Unfortunately, it typically takes a backseat in economic decisions.

Some of the local real estate effect can be found by looking at the Northeast Tennessee Associations of REALTORS’® (NETAR) annual Home Sales Report. It reports how much consumers spent during the year on single-family homes, condos, and townhomes. Last year, there were 8,944 residential resales of properties listed on the local regional Multiple Listing Service (MLS). Those sales add up to $2.1 billion.

And there’s more to the real estate effect story.

Thanks to the research department at the National Association of REALTORS® (NAR) crunching data from the Bureau of Economic Analysis (BEA), the U.S. Census, the National Association of Home Builders’ (NHBA), and macroeconomic advisors, we get a look at the residential real estate effect on Tennessee’s economy. The current study shows it accounted for $57.2 billion or about $66,000 for each residential resale. That’s about 16 percent of the Tennessee economy. If applied locally, you come up with a comparable share for the local, regional economy.

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

  • Income generated from real estate industries is about 9 percent 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 National Association of Home Builders’ (NAHB) analysis that shows furniture and remodeling expansion adds another 7.1 percent to the total impact.
  • Multiplier effects from related expenditures account for another 16.3 percent of the total impact.
  • 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.

And that just the impact of residential real estate. It does not include commercial real estate or new home sales. Still, it adds context about an essential part of the local economy.

It’s a critical point today because while real estate made a quick rebound from the coronavirus economic fallout, that’s’ not the case in other parts of the economy. For example, the local labor market ended the year with over 9,000 fewer jobs than it had at the end of 2019.

The NE Tenn. – SW Va. economic recovery is still somewhere in the future, and the data show real estate continues to lead the way. 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 is the largest trade association in the Northeast Tennessee – Southwest Virginia region representing over 1,400 members and 100 affiliates involved in all aspects of the residential and commercial real estate industries. Pending sales, Trends Reports, and the regional market analytics can be found on the NETAR websites at https://netar.us/voice-real-estate-northeast-tennessee.

NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee, Southwest Virginia region, representing over 1,800+ members and 100+ business partners involved in all aspects of the residential and commercial real estate industries. Weekly market reports and information for both consumers and members are available on the NETAR website at https://netar.us