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As US Economy Zigs Upward Again, Real Estate Sags

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Hits to broker commissions and home construction drove a decline in real estate gross domestic product in the third quarter of the year, new data shows.

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Broker commissions and new construction investment tanked in the third quarter of the year, spelling a rough three months for real estate even as the broader economy bounced back from an earlier skid.

Real gross domestic product rose 2.6 percent in the third quarter of 2022, halting the two consecutive periods of decline that occurred in the first half of the year, according to a report Thursday from the U.S. Department of Commerce.

But in the world of real estate, the nosedive from coronavirus-pandemic-era heights continued.

Fixed residential investment declined 26 percent from the second quarter to the third on a seasonally adjusted basis. This marks the sixth consecutive quarter of decline in residential investment and the largest quarterly drop since the second quarter of 2020 when the consequences of the pandemic began to ripple through the economy. 

In fact, residential investment was the single greatest drag on third-quarter GDP, holding economic growth back by nearly 1.4 percentage points.

“This is consistent with other housing market data on home purchase applications, home sales, and housing starts, which showed significant weakening last quarter as mortgage rates reached multi-decade highs and as economic uncertainty grew,” Joel Kan, deputy chief economist and vice president of the Mortgage Bankers Association, said in a statement.

Declines were particularly pronounced in single-family construction, which declined 36 percent in the third quarter. Multifamily structures declined by a more modest 5 percent in that same time.

But “other structures,” a category that includes broker commissions, also took a heavy hit in the third quarter. This category dropped by more than 21 percent in that time.

But the growth elsewhere overshadowed even these steep declines in one of the economy’s largest sectors. Net exports of goods and services boosted the total GDP number by nearly 2.8 percentage points. Household spending on services, as well as private investment in non-residential projects, also contributed to the quarterly bump.

The two periods of contraction that preceded last quarter — often used as a rule of thumb for what constitutes a “recession” — also coincided with strong job growth and other indicators. But a growing number of economists now suspect that the next time GDP shrinks, it may cut further into employment and incomes.

“Despite a strong third quarter result, our forecast is for a slowdown in economic growth in the coming quarters and for the economy to enter a recession in 2023,” Kan said in the statement. “Sharp slowdowns in global growth and tighter financial conditions have started to exert pressure on parts of the economy, in particular housing.”

Email Daniel Houston

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