It’s obvious, at least to this blogger, that the bulls on Wall Street and in the housing industry have been trying desperately to downplay, or even ignore the impact that the bursting national housing bubble would have on the economy.Their high hopes and expectations are contingent upon their belief that the downturn in housing will be moderate, contained and temporary leaving the general economy free to glide quietly to a “soft landing” as it comes off this historic run-up.
Additionally, they seem so committed to this belief that it appears that no amount of data is sufficient enough to convince them otherwise.
Well, as they say, that was then, this is now…
Today, the US Department of Commerce released its “Report on Gross Domestic Product” for the third quarter of 2006, hopefully, to the genuine dismay of the many bulls eager for a contained and mild impact of the now obvious housing bust.
Easily, the most notable disclosure present in today’s report is the 17.4% decrease in “Residential Fixed Investment”.
The following is the definition of “Residential Fixed Investment” used by the Commerce Department.
Residential Fixed Investment
Investments consisting of purchases of private residential structures as well as residential equipment that is owned by landlords and rented to tenants.
Investment in residential structures consists of new construction of permanent-site single-family and multi-family units, improvements (additions, alterations, and major structural replacements) to housing units, expenditures on manufactured homes, brokers’ commissions on the sale of residential property, and net purchases of used structures from government agencies. Residential structures also include some types of equipment that are built into residential structures, such as heating and air-conditioning equipment.
As you can see, the “residential fixed investment” number is a broad category capturing everything from home construction and rehabilitation to brokers’ commissions and essential home equipment manufacturing.
To put this decline in perspective, this 17.5% decrease shaved 1.12% from the third quarter GDP or roughly equivalent to either the 1.28% GDP reduction coming from all imports of foreign goods and services (i.e. imported goods and services are always subtracted from GDP) or the 1.15% GDP contribution coming from all personal consumption services rendered (think electricity, gas, transportation, medical care, housing, etc.) during the same period.
The following are two different chart views (click for larger versions) showing the percentage change to real residential fixed investment on a quarterly year-over-year basis since Q1 2003.
Clearly, housing is showing a significant decline and its impact on GDP is real and substantial.
