Good News for GDP Growth, But Will Housing Benefit?

The Bureau of Economic Analysis announced Friday that “advance” estimates reported the GDP increased annually by 3.2% in the first quarter of 2019, building upon the 2.2% increase in the fourth quarter of 2018.

The Bureau’s first quarter estimates are based on data that is incomplete, or subject to further revision. A second estimate for the first quarter, based on more complete data, will be released on May 30.

“While early projections suggested that first quarter GDP would weaken from the third quarter (3.4%) and fourth quarter (2.2%) of 2018, today’s data show that GDP growth was 3.2% in the first quarter,” said Danielle Hale, Chief Economist for Realtor.com. “This is a very strong pace of growth, and suggests that most of the economic loss from the government shutdown was also made up for in the first quarter.”

As it pertains to real estate, Hale said fixed investment continued to slip, registering the lowest year over year growth rate since 2011 as builders struggle to build housing at the most in-demand, lower price points. And while growth from net exports, government spending, and private investment boosted GDP this quarter, the contribution from consumer expenditures, while positive, was half that of the fourth quarter.

"We think housing could be a bright spot for the economy in 2019, and it’s one that most economists are sleeping on," said Brett F. Ewing, Chief Market Strategist for First Franklin Financial Services. "With the Fed out of the picture and growth moderating, mortgage rates should stay around four percent for the remainder of 2019 and there is obvious appetite from prospective buyers at these levels. Specifically, we think new home sales could surprise to the upside and get to near double-digit growth this year."

Ewing added that "REITs are also attractive in this low interest rate environment—their balance sheets have never been stronger and despite a recency bias that continues to cause investors to call for a real estate crisis around every slowdown in the economy, we think real estate fundamentals are strong enough to weather a storm."

According to the report, increases in the GDP during the first quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, state and local government spending, and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP. These contributions were offset by a decrease in residential investment.

The current-dollar GDP jumped to $197.6 billion, an increase of 3.8%, in the first quarter to a level of $21.06, continuing increases from the fourth quarter of 2018 when the current-dollar GDP increased 4.1%, or $206.9 billion.

Also seeing increases were the price index for gross domestic purchases, which grew by 0.8% in the first quarter, and the current dollar personal income increased $147.2 billion in the first quarter. Current-dollar personal income increased by $229 billion in the fourth quarter of 2018.

The reports add that disposable personal income increased by 3% ($116 billion) after a 5.8% increase in the fourth quarter of 2018. Real disposable income increased 2.4% following an increase of 4.3% last quarter.

Personal savings grew from $1.07 trillion to $1.11 trillion in the first quarter of 2019.