October 10, 2016

Deep dive into real estate numbers shows it has big local economy role


When most people think about buying or selling a home, the last thing on their mind is how it affects their hometown's economy. I'll be the first to admit its a bit arcane idea and since there are so many other things demanding attention, it's no wonder that big picture situation is at the back of the line. Since it's out of site then it stays there most of the time.

Increasing public awareness of that economic impact is something that's high on the Northeast Tennessee Association of Realtors' to-do list. It's also a staple of the public information efforts of the National Association of Realtors. To help explain it, NAR's Bureau of Economic Analysis regularly teams up Harvard's Joint Center for Housing Studies to put some context on the issue for each state in the nation. The message doesn't have to stop at the state level. With a little reverse engineering, it can be adapted to show local impact.

Here in Tennessee, the most recent analysis shows the real estate industry accounts for 14.8% of the state's Gross Product.  That's another number difficult for many people to grasp, so the researchers break it down to a series of direct cause and effect contributions.

The contributions list includes the economic effects of home construction, real estate brokerage, mortgage lending, title insurance, rental and leasing, home appraisal, moving service and other related things that come into play when a house is sold. The exercise puts all of that income generated in real estate related industries on an individual home sale basis. Then they added additional consumer spending for things like furniture, appliances, remodeling and a multiplier factor for increased spending at restaurants, charity, and entertainment events and the affect of existing home sales on new home construction.

When all of that is totaled the total economic impact of typical home sales in Tennessee is $42,025. That's what's added to the economy every time a typical sale is made. A little reverse engineering on the percentages and some adjustment for local market conditions gives us a number that can be used to measure the economic impact of existing home sales on the local economy. It's not an exact number, but it's in the ball park.

Just the existing home and condo sales in the 11-county area monitored by NETAR's Trends Report came in at $879.1 million last year.  That's only sales listed through the Regional Multiple Listing Service. The best estimate is MLS listings account for about 75% of the housing market. It's safe to say that if the rest of the sales were added to the Trends Report total the local sales volume last year would have been over a billion dollars.

Remember that's just the sales figure. When you apply the economic impact per typical home sale of just the NETAR numbers you get another $25.2 million.

Over a billion dollars for seven counties in Northeast Tennessee and four in Southwestern Virginia may not be the biggest piece of the local economic pie, but it's a pretty good slice for something that's taken for granted so often.

Real estate also provides a substantial base for employment and entrepreneurship. For example, NETAR has a little over 1,000 members. It's not your typical payroll employment situation. Each is an entrepreneur because the measure of their worth is determined by the effort and talent they bring to the game.

NAR's Bureau of Economics also has a study that shows one job is created and maintained in the broader economy for every two typical home sales. The economists at the National Homebuilders' Association have studies that show every new home sale generates and sustains three jobs for a year. Many of those jobs are in the construction industry, and a quick check of the numbers show construction jobs are nowhere near what they were before the recession. Neither is new home construction. It's slowly recovering, and some builders say at a normal level for the new economy. Unfortunately, for construction workers that level is at about half the capacity, it was before the recession.

Any way you look at it, the real estate industry is a major player in the economies the cities and counties across the region.

Marsha Stowell is the 2016 president of the Northeast Tennessee Association of Realtors. The real estate education and trade group is the voice for real estate in the Tri-Cities and has over 1,000 local Realtor® members and almost 60 affiliates