Real Estate Drives U.S. Economy

Sunday, July 10, 2005 | 07:09 AM

The NYT has finally caught up with a story we have been beating for quite some time now: Real Estate is the primary driver of the US economy since the recession ended in 2001.

We have been sounding this note for quite while; Slate's Dan Gross also wrote this up a few weeks ago. But to give credit where its due, Asha Bangalore of the Northern Trust Company was the first Wall Street firm to quantify this (Her work is what led to my post ); Then a month later, Merrill wrote up something remarkably similar.

Now, a few weeks after NT and Merrill, the NYT writes up a broader but clearly related line of thought, based upon research from

Here's the ubiquitous excerpt:

" . . . what might be called the real estate industrial complex, the economic engine that has become one of the few reliable sources of growth in recent years. Encompassing everything from land surveyors to general contractors to loan officers, the sprawling sector has added 700,000 jobs to the nation's payrolls over the last four years, according to an analysis by, a research firm.

Combined, the rest of the economy has lost nearly 400,000 jobs over the same span, which stretches back to the start of the most recent recession, in 2001.

For all its benefits, the newfound power of real estate has also left the country vulnerable to a housing slowdown, which many economists expect over the next few years. Residential housing now makes up 16 percent, or $1.9 trillion, of the gross domestic product and is the economy's largest single sector, slightly bigger than the industries and services that supply health care, according to"

click for larger graphic


Graphic courtesy of NYT


The Times (unfortunately) is even behind in recognizing the potential risk to the economy: They noted "the newfound power of real estate has also left the country vulnerable to a housing slowdown, which many economists expect over the next few years."

You can wait a few years, or you can recognize the early signs now. As we wrote back in April (and before), the most vibrant sector of the economy -- the real estate complex -- is already showing some signs of slowing. If you watch mortgage apps, new home starts, and total sales, there is evidence of a plateau already.

The keys to a real estate slow down will be mortgage rates first, followed by unemployment. If either of these rise appreciably -- or if overbuilding creates enough supply -- it will be the beginning of the end for the hot sales and commensurate momentum of the sector.


Boom in Jobs, Not Just Houses, as Real Estate Drives Economy
NYT, July 9, 2005

Sunday, July 10, 2005 | 07:09 AM | Permalink | Comments (2) | TrackBack (1) add to | digg digg this! | technorati add to technorati | email email this post



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» Real estate and Recession from Hot Property
There is a whole class of economist that doesn't believe we are in the midst of a serious real estate bubble, but is nonetheless quite concerned about the health of the real estate market. Barry Ritholtz, chief market strategist at... [Read More]

Tracked on Aug 8, 2005 10:51:46 AM


This is frightening: "Residential housing now makes up 16 percent, or $1.9 trillion, of the gross domestic product and is the economy's largest single sector"

Looks like we've gotten really good at building houses and selling them to ourselves at no-money down (too bad we can't develop an export market-- it would eliminate our C/A deficit in a matter of months).

Its somewhat of a virtuous circle right now -- with housing responsible for creating most of the new jobs which in part must be feeding the demand for new houses.

When this ends its going to be ugly. I plan on watching from the sidelines -- renting now -- having sold 2 personal residences in the past 5 years -- pocketing a cool $1,000,000 tax free (Uncle Sam is playing its part in blowing up this bubble) -- something [or everything] about all this is just not right -- and in my opinion there is no doubt that it is "quite a bubble."

I predict that Barry's NY Times debut may rank right up there with other famous turning point articles like BW's "Death of Equities" and the Economist "Drowning in Oil."

Posted by: edje | Jul 10, 2005 2:42:21 PM

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