The Ripple Effect of Home Buying

October 9, 2013

Using the Consumer Expenditure Survey (CES) data from the Bureau of Labor Statistics (BLS), NAHB Economics research shows that a home purchase triggers additional spending on appliances, furnishings, and remodeling. Such spending typically exceeds that of non-moving home owners and persists for two years after moving.

The NAHB analysis compares spending behavior among three groups of single-family detached home owners: buyers of new homes, buyers of existing homes and non-moving owners. During the first two years after closing on the house home buyers tend to spend on appliances, furnishings and property alterations considerably more compared to non-moving owners. However, home buyers tend to be larger households with children, and on average wealthier, with higher levels of education and concentrated in urban areas. Any of these factors could potentially explain higher spending on appliances, furnishings and remodeling by home buyers. Thus, the NAHB analysis controls for the impact of household characteristics on expenditures, and, nevertheless, finds that a home purchase alters the spending behavior of homeowners and that otherwise similar homeowners spend more across all three categories compared to non-moving owners during the first two years after moving. Ripple_blog1

Looking at spending patterns of new home buyers and identical households that do not move, the differences are largest on furnishings. A typical new home buyer that buys a new home is estimated to spend in excess of $3,000 more on furnishings than an identical household that stays put in a house they already own. The elevated level of spending persists into the second year as new home buyers spend additional $2,000 over their typical budget on furnishings.

Similarly, moving into a new home triggers higher levels of spending on appliances. A typical new home buyer that moves into a new home is estimated to spend $1,005 more on appliances during the first year compared to a non-moving owner. The difference shrinks to $348 during the second year and goes away after that.

In the case of property repairs and alterations the differences are smallest, $740, and last only one year, which is not surprising considering that most households would not want to spend years in a house with ongoing remodeling projects.

Buying an older home also triggers additional spending. The typical buyer of an existing home tends to spend close to $4,000 more on remodeling, furnishings, and appliances compared to otherwise identical homeowners that do not move. However, in case of buying an older home, most of this extra spending goes to remodeling projects, more than $2,000, and occurs during the first year after closing on the house. Only the additional spending on furnishings tends to persist beyond the first year.

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The statistical analysis further shows that this higher level of spending on furnishings, appliances and property alterations is not paid by cutting spending on other items, such as entertainment, transportations, travel, food at home, restaurants meals, etc. This confirms that home buying indeed generates a wave of additional spending and activity not accounted for in the purchase price of the home alone.

In summary, the NAHB analysis shows that during the first two years after closing on the house a typical buyer of a new single-family detached home tends to spend on average $7,400 more than a similar home owner who does not move, including $4,900 in the first year after purchase.  Likewise, a buyer of an existing single-family detached home tends to spend about $4,000 more than a similar non-moving home owner, including $3,600 during the first year. The overall ripple effect of home buying does not stop here, as producers of appliances, furnishings and remodelers spend their additional income paid by home buyers and trigger further waves of economic activity.


Local Economic Benefits of Remodeling

May 14, 2012

Home building and remodeling generate significant economic benefits. Since May is National Home Remodeling month, we thought we would look at the economic benefits remodeling activity has on the community where it takes place.

According to NAHB estimates, for typical remodeling projects, every $10 million of total remodeling activity in an area generates:

  • 78 local jobs
  • $6.9 million local wage and business income
  • $577,000 in taxes and fees for local governments

The ongoing effects include an additional $100,000 in residential property tax revenue for local jurisdictions through the improved value of homes.

The jobs impact in particular is worth noting, as net job loss in the residential construction sector due to the Great Recession currently stands at 1.41 million.

All in all, this is a reminder that housing equals jobs.

 

To derive these impacts, NAHB has developed a model that estimates the economic effects of various kinds of home building. The model captures the effect of the construction activity itself, the ripple impact that occurs when income earned from construction activity is spent and recycles in the local economy, and the ongoing impacts that comes from building or improving homes in a local area.

These impacts are “local” in that they measure the benefits that accrue to individuals, businesses and governments in a given area. National economic impacts would include larger business benefits, by estimating the manufacturing effects for example, but would also have lower ongoing impacts due to residents choosing to live or remain in a given area.