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The Ripple Effect of Home Buying Fuels the Economy

new homes fuel the economyBy Kim Hibbs, 2016 President, Home Builders Association of St. Louis & Eastern Missouri (HBA) Article as seen in the St. Louis Post-Dispatch.

The National Association of Home Builders (NAHB) analyzed data from the Consumer Expenditure Survey from the Bureau of Labor Statistics and it showed a ripple effect of economic activity triggered by a new home purchase. A typical buyer of a new single-family detached home tends to spend on average $7,400 in the first two years after closing on the new home.

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, buyers tend to spend on appliances, furnishings and property alterations considerably more compared to non-moving owners.

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 is estimated to spend in excess of $3,000 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 an additional $2,000 over their typical budget on furnishings.

kitchen stove, build my own house, building a new home, home builder, Home Builders, Home construction, home construction companies, house builder, house builders, house plan, kirkwood new home builder, new construction homes, new home builder, New Home Builders, build a house, building a home, building your own home, new homes, New Home ConstructionSimilarly, moving into a new home triggers higher levels of spending on appliances. A typical new home buyer who moves into a new home is estimated to spend $1,005 more on appliances during the first year compared to a non-moving owner.

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 home owners who do not move. However, in the 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.

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.

dining room with red walls, build my own house, building a new home, home builder, Home Builders, Home construction, home construction companies, house builder, house builders, house plan, kirkwood new home builder, new construction homes, new home builder, New Home Builders, build a house, building a home, building your own home, new homes, New Home ConstructionIn 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.

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