Economic Indicators Home Builders Should Watch

Running a construction business requires more than building skills and good management—it also requires understanding economic trends. For home builders, the economy's condition isn't just background noise; it guides important decisions and risk management. The 2008 Great Recession taught us a lot. Even a tiny 4% increase in the federal funds rate caused many people to lose their homes, showing how sensitive the housing market is to economic changes.

Because of these challenges, home builders must stay alert and informed about key economic indicators. This article explains the important economic signs home builders should watch to keep their businesses strong and adaptable.

GDP Growth

The Gross Domestic Product (GDP) measures the total value of goods and services produced by a country. Currently, the US GDP stands at $28.28 trillion, reflecting a 5.49% increase from last year. Keeping an eye on GDP is crucial for understanding the country's economic health. A rising GDP indicates a strong economy, while a declining GDP indicates economic struggles.

How does this impact real estate? A strong economy boosts consumer confidence and leads to higher household incomes, increasing housing demand and driving up real estate prices. This means higher sales potential for home builders, especially in high-GDP states like Texas, Florida, South Carolina, and Arizona.

Unemployment Rate

Another economic indicator that home builders should monitor is the unemployment rate. This metric offers insight into the labor market and influences house prices. A high unemployment rate means that the demand for housing will be low. That’s because not many people can afford to rent a space, let alone buy one. Often, this situation leads to a buyer’s market as the supply of homes exceeds demand. Conversely, low unemployment rates are linked to increasing housing demand, pushing prices up.?

Housing Starts

It’s also crucial to monitor housing starts. This data estimates the number of new construction home projects that have started within a particular time. An upsurge in housing starts translates to increased demand for labor and construction materials. More importantly, it increases the number of housing units available on the market. As a result, this pushes real estate prices down, making buying a home affordable for many.?

Consumer Confidence

Consumer confidence and spending habits go hand in hand. The more secure buyers feel about the economy and their financial capabilities, the more likely they are to spend. Low consumer confidence deters people from spending, especially on big-ticket items like a new home.?

Increased consumer confidence means a high demand for housing, which causes house prices to soar. Based on recent data, consumer sentiment grew in May to 102.0, meaning builders will likely see a slight growth in housing demand.?

Inflation

Last but not least, keep a close eye on inflation rates. Inflation refers to an increase in the average prices of goods and services. Research shows that commodity prices increased 3.5% between March 2023 and March 2024.?

How does rising inflation impact real estate and construction? It automatically increases the cost of construction materials and labor. When inflation rates increase, the number of new builds plummets, reducing the number of units available in the market. This combination of low supply and high demand means real estate prices are bound to soar.??

As you continue to build and expand your construction business, remember that being proactive and informed can give you a competitive edge. What economic factors have impacted your projects? Leave your comments below and share your experiences!