Introduction to U.S. Economy: Housing Market
link to page 1 
Updated January 3, 2023
Introduction to U.S. Economy: Housing Market
The Housing Market
more rapidly as the housing bubble burst. Since then,
Real estate and the housing market play an important role in
residential investment has remained well below its peak
the U.S. economy. At the individual level, roughly 65% of
both in dollar terms and as a percentage of GDP. Despite a
occupied housing units are owner occupied, homes are
steep drop in total housing spending, both in dollar terms
often a substantial source of household wealth in the United
and as a percentage of GDP, spending on housing services
States, and housing construction provides widespread
continued to rise as a percentage of GDP through this
employment. At the aggregate level, housing accounts for a
period. Housing’s share of GDP has still not reached its
significant portion of all economic activity, and changes in
2005 peak.
the housing market can have broader effects on the
economy.
Figure 1. Total Spending in Housing Market
As a percentage of GDP
Household Net Worth
Purchasing a home is often one of the largest investments
individuals make. Home ownership accounts for a
significant portion of households’ net worth in the United
States. As of the third quarter of 2022, owner-occupied real
estate accounted for slightly more than a quarter of
households’ net worth, according to Federal Reserve data.
The share of households’ net worth arising from their home
has been relatively stable over the past several years, after
declining significantly following the 2007-2009 recession.
Employment
Residential construction is a significant industry in the
United States, and it employs a large number of people. At
the peak of the housing market bubble in 2006, residential
construction employed more than 1 million individuals.
Source: Bureau of Economic Analysis, National Income and Product
However, as a result of the housing bubble bursting and
Accounts, Table 1.1.5, and Table 2.3.5.
subsequent recession, employment fell to a low of about
560,000 employees in May 2011. Since then, employment
Housing’s Indirect Impact on the Economy
has picked up in this industry (apart from a brief decline
The housing market can play an important role in the
during the 2020 recession) and reached about 903,000 by
broader economy as well, as evidenced by the housing
November 2022, according Bureau of Labor Statistics data.
bubble that precipitated the recession of 2007-2009.
Housing prices can impact residential investment and
Housing and the Broader Economy
therefore affect economic growth. Rising home prices likely
The housing market is incorporated into gross domestic
encourage additional construction spending to take
product (GDP), the prominent measure of economic
advantage of higher prices, leading to more robust
activity, in two ways. First, GDP includes all spending on
economic growth. A decline in housing prices is likely to
the construction of new single- and multi-family structures,
depress construction spending, leading to more anemic
residential remodeling, and brokers’ fees, which is referred
economic growth.
to as residential fixed investment. As of 2021, spending on
residential fixed investment was about $1.1 trillion,
Fluctuations in the housing market, particularly housing
accounting for about 4.8% of GDP. Second, GDP includes
prices, can have broader effects on the economy through so-
all spending on housing services, which includes renters’
called wealth effects. An increase in housing value
rents and utilities and homeowners’ imputed rent and utility
encourages homeowners to spend more than they do at
payments. As of 2021, spending on housing services was
other times for a variety of reasons, including higher
about $2.8 trillion, accounting for 11.9% of GDP. Taken
confidence in the economy, increased home equity for
together, spending within the housing market accounted for
homeowners to borrow against, and higher rental income. A
16.7% of GDP in 2021.
decrease in prices results in the opposite. In the United
States, consumer spending makes up roughly 70% of the
As shown in Figure 1, housing’s share of GDP has
economy; therefore, changes in housing wealth can result in
generally trended upwards, with the notable exception of
significant changes in economic growth.
the housing market crash in 2007. Between 2000 and 2005,
residential investment grew rapidly before declining even
https://crsreports.congress.gov
link to page 2 link to page 2 link to page 1 link to page 2
Introduction to U.S. Economy: Housing Market
Monetary Policy and the Housing Market
sales fell dramatically. Home sales began to recover in 2011
Federal Reserve decisions may also affect the housing
and 2012 but have still not recovered to pre-recession
market through the cost of financing a home purchase. Most
levels. In 2021, sales of existing houses increased by 8.5%
Americans take out a mortgage to purchase a home, and
while sales of new houses decreased by 6.2%.
mortgage debt accounts for about 70% of all household
debt. The interest rate associated with a mortgage is
Figure 3. Annual House Sales
partially determined by the supply and demand for loanable
In thousands
funds; however, the Federal Reserve can also influence
mortgage interest rates by adjusting its benchmark interest
rate, the federal funds rate. When the Federal Reserve
decides to increase the federal funds rate, it puts upward
pressure on mortgage interest rates as well. Higher
mortgage interest rates increase the overall cost of
purchasing a home, by increasing mortgage payments.
During the 2007-2009 recession and the COVID-19
pandemic, the Federal Reserve purposely tried to decrease
mortgage interest rates more directly by purchasing
mortgage-backed securities. Thirty-year mortgage rates
temporarily dropped below 3% in 2020 but have since more
than doubled as the Federal Reserve has increased interest
Source: Department of Housing and Urban Development, U.S.
rates and let securities roll off its balance sheet.
Housing Market Conditions.
Housing Market Conditions
Residential investment, shown as a percentage of GDP in
Figure 1, is also used as a measure of the health of the
A number of broad indicators are used to assess the housing
housing market. If demand for housing declines or
market. National indicators do not necessarily capture the
economic actors expect the housing market to weaken,
variation among local markets and, therefore, may not be
residential investment is likely to slow or decline, and vice
indicative of any one specific locality.
versa. In dollar terms, residential investment hit a relative
peak in 2005 before falling significantly following the
Figure 2. Nominal Housing Prices
housing bubble of 2007; 2005 levels were only recently
Year-over-year change
surpassed in 2020.
Finally, housing inventory (the supply of housing available
for sale) is often used to assess housing market conditions.
A low inventory generally leads to upward pressure on
house prices. Housing inventory has been relatively low for
the past decade, as shown in Figure 4.
Figure 4. Housing Inventory
Source: Federal Housing Finance Agency, House Price Indexes,
Seasonal y Adjusted Purchase-Only Index.
Housing prices are an indicator of the housing market’s
conditions and have important implications for the
economy as a whole. As shown in Figure 2, after falling
significantly during the 2007-2009 recession, average
nominal housing prices have been increasing nationally
Source: Department of Housing and Urban Development, U.S.
each year since the beginning of 2012, surpassing their
Housing Market Conditions.
previous nominal peak in the first quarter of 2016. After
rapid growth in housing prices in 2020, growth has begun
CRS Resources
slowing, although it yet remains high in nominal terms.
CRS In Focus IF12048, High Home Prices: Contributing
Another common indicator of the health of the housing
Factors and Policy Considerations, by Mark P. Keightley
market is home sales. Increasing home sales are generally
and Lida R. Weinstock.
viewed as a sign of a strong housing market and a strong
economy, as it suggests individuals have both the income to
(Note: This In Focus was originally authored by Jeffrey
make the purchase and a positive economic outlook. As
Stupak, former CRS Analyst in Macroeconomic Policy.)
shown in Figure 3, during the 2007-2009 recession, home
https://crsreports.congress.gov
Introduction to U.S. Economy: Housing Market
IF11327
Lida R. Weinstock, Analyst Macroeconomic Policy
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11327 · VERSION 10 · UPDATED
Updated January 3, 2023
Introduction to U.S. Economy: Housing Market
The Housing Market
more rapidly as the housing bubble burst. Since then,
Real estate and the housing market play an important role in
residential investment has remained well below its peak
the U.S. economy. At the individual level, roughly 65% of
both in dollar terms and as a percentage of GDP. Despite a
occupied housing units are owner occupied, homes are
steep drop in total housing spending, both in dollar terms
often a substantial source of household wealth in the United
and as a percentage of GDP, spending on housing services
States, and housing construction provides widespread
continued to rise as a percentage of GDP through this
employment. At the aggregate level, housing accounts for a
period. Housing’s share of GDP has still not reached its
significant portion of all economic activity, and changes in
2005 peak.
the housing market can have broader effects on the
economy.
Figure 1. Total Spending in Housing Market
As a percentage of GDP
Household Net Worth
Purchasing a home is often one of the largest investments
individuals make. Home ownership accounts for a
significant portion of households’ net worth in the United
States. As of the third quarter of 2022, owner-occupied real
estate accounted for slightly more than a quarter of
households’ net worth, according to Federal Reserve data.
The share of households’ net worth arising from their home
has been relatively stable over the past several years, after
declining significantly following the 2007-2009 recession.
Employment
Residential construction is a significant industry in the
United States, and it employs a large number of people. At
the peak of the housing market bubble in 2006, residential
construction employed more than 1 million individuals.
Source: Bureau of Economic Analysis, National Income and Product
However, as a result of the housing bubble bursting and
Accounts, Table 1.1.5, and Table 2.3.5.
subsequent recession, employment fell to a low of about
560,000 employees in May 2011. Since then, employment
Housing’s Indirect Impact on the Economy
has picked up in this industry (apart from a brief decline
The housing market can play an important role in the
during the 2020 recession) and reached about 903,000 by
broader economy as well, as evidenced by the housing
November 2022, according Bureau of Labor Statistics data.
bubble that precipitated the recession of 2007-2009.
Housing prices can impact residential investment and
Housing and the Broader Economy
therefore affect economic growth. Rising home prices likely
The housing market is incorporated into gross domestic
encourage additional construction spending to take
product (GDP), the prominent measure of economic
advantage of higher prices, leading to more robust
activity, in two ways. First, GDP includes all spending on
economic growth. A decline in housing prices is likely to
the construction of new single- and multi-family structures,
depress construction spending, leading to more anemic
residential remodeling, and brokers’ fees, which is referred
economic growth.
to as residential fixed investment. As of 2021, spending on
residential fixed investment was about $1.1 trillion,
Fluctuations in the housing market, particularly housing
accounting for about 4.8% of GDP. Second, GDP includes
prices, can have broader effects on the economy through so-
all spending on housing services, which includes renters’
called wealth effects. An increase in housing value
rents and utilities and homeowners’ imputed rent and utility
encourages homeowners to spend more than they do at
payments. As of 2021, spending on housing services was
other times for a variety of reasons, including higher
about $2.8 trillion, accounting for 11.9% of GDP. Taken
confidence in the economy, increased home equity for
together, spending within the housing market accounted for
homeowners to borrow against, and higher rental income. A
16.7% of GDP in 2021.
decrease in prices results in the opposite. In the United
States, consumer spending makes up roughly 70% of the
As shown in Figure 1, housing’s share of GDP has
economy; therefore, changes in housing wealth can result in
generally trended upwards, with the notable exception of
significant changes in economic growth.
the housing market crash in 2007. Between 2000 and 2005,
residential investment grew rapidly before declining even
https://crsreports.congress.gov
link to page 2 link to page 2 link to page 1 link to page 2
Introduction to U.S. Economy: Housing Market
Monetary Policy and the Housing Market
sales fell dramatically. Home sales began to recover in 2011
Federal Reserve decisions may also affect the housing
and 2012 but have still not recovered to pre-recession
market through the cost of financing a home purchase. Most
levels. In 2021, sales of existing houses increased by 8.5%
Americans take out a mortgage to purchase a home, and
while sales of new houses decreased by 6.2%.
mortgage debt accounts for about 70% of all household
debt. The interest rate associated with a mortgage is
Figure 3. Annual House Sales
partially determined by the supply and demand for loanable
In thousands
funds; however, the Federal Reserve can also influence
mortgage interest rates by adjusting its benchmark interest
rate, the federal funds rate. When the Federal Reserve
decides to increase the federal funds rate, it puts upward
pressure on mortgage interest rates as well. Higher
mortgage interest rates increase the overall cost of
purchasing a home, by increasing mortgage payments.
During the 2007-2009 recession and the COVID-19
pandemic, the Federal Reserve purposely tried to decrease
mortgage interest rates more directly by purchasing
mortgage-backed securities. Thirty-year mortgage rates
temporarily dropped below 3% in 2020 but have since more
than doubled as the Federal Reserve has increased interest
Source: Department of Housing and Urban Development, U.S.
rates and let securities roll off its balance sheet.
Housing Market Conditions.
Housing Market Conditions
Residential investment, shown as a percentage of GDP in
Figure 1, is also used as a measure of the health of the
A number of broad indicators are used to assess the housing
housing market. If demand for housing declines or
market. National indicators do not necessarily capture the
economic actors expect the housing market to weaken,
variation among local markets and, therefore, may not be
residential investment is likely to slow or decline, and vice
indicative of any one specific locality.
versa. In dollar terms, residential investment hit a relative
peak in 2005 before falling significantly following the
Figure 2. Nominal Housing Prices
housing bubble of 2007; 2005 levels were only recently
Year-over-year change
surpassed in 2020.
Finally, housing inventory (the supply of housing available
for sale) is often used to assess housing market conditions.
A low inventory generally leads to upward pressure on
house prices. Housing inventory has been relatively low for
the past decade, as shown in Figure 4.
Figure 4. Housing Inventory
Source: Federal Housing Finance Agency, House Price Indexes,
Seasonal y Adjusted Purchase-Only Index.
Housing prices are an indicator of the housing market’s
conditions and have important implications for the
economy as a whole. As shown in Figure 2, after falling
significantly during the 2007-2009 recession, average
nominal housing prices have been increasing nationally
Source: Department of Housing and Urban Development, U.S.
each year since the beginning of 2012, surpassing their
Housing Market Conditions.
previous nominal peak in the first quarter of 2016. After
rapid growth in housing prices in 2020, growth has begun
CRS Resources
slowing, although it yet remains high in nominal terms.
CRS In Focus IF12048, High Home Prices: Contributing
Another common indicator of the health of the housing
Factors and Policy Considerations, by Mark P. Keightley
market is home sales. Increasing home sales are generally
and Lida R. Weinstock.
viewed as a sign of a strong housing market and a strong
economy, as it suggests individuals have both the income to
(Note: This In Focus was originally authored by Jeffrey
make the purchase and a positive economic outlook. As
Stupak, former CRS Analyst in Macroeconomic Policy.)
shown in Figure 3, during the 2007-2009 recession, home
https://crsreports.congress.gov
Introduction to U.S. Economy: Housing Market
IF11327
Lida R. Weinstock, Analyst Macroeconomic Policy
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11327 · VERSION 10 · UPDATED