Real estate is and continues to be a wealth-building tool for the middle class as well as an important link to home services, products and income for millions of people. How does the sale of one home in one region and/or state impact the economy of that state?

Nadia Evangelou, a research economist with the National Association of REALTORS® (NAR), told InmanNews via her recent article that home sales account for nearly 17% of the nation’s GDP. Within that statistic, new home construction carries an impact of 51.5% of the purchase price back to the state in terms of “extra” money spent on home “stuff.” Additionally, there are agent commissions, closing costs, title insurance, etc. which come to approximately 5.0% of the purchase price.

Here are the top ten states where the highest “ancillary,” home related costs were generated in 2018.

  • Hawaii – $246,980
  • Washington DC – $224,730
  • California – $173,130
  • Colorado – $129,050
  • Washington – $126,170
  • Massachusetts – $125,090
  • Oregon – $116,840
  • Maryland – $95,910
  • Vermont – $95,400

Let’s compare how selling one home in California compares to selling one home in Illinois in terms of ancillary, home-related costs per economic impact.

In California, the real estate industry accounts for approximately $608.5B or 20.5% of the state’s domestic product. The total income generated from the sale of one existing home in California generates, according to NAR’s Evangelou, approximately $173,125…income from commissions, fees, moving costs account for approximately $50,076; 28.9%; income from furnishing and remodeling expenses account for approximately $4,243 (according to the National Association of Homebuilders); and the multiplier effect accounts for approximately $26,073 as a result of one home sale that is then re-circulated into the economy.

The sale of one newly constructed home adds an additional $92,733 or 53.6% of the purchase price due to the “necessity” of more home products sold. Evangelou estimates that for every new home sold, one sixth of the new home’s value is added to the economy.

In Illinois, the real estate industry generates approximately $139.2B. Income generated from/by real estate industries generates approximately $18,099 or 27.2% of the purchase price back into the economy; expenditures on home purchases generate approximately $4,243; the multiplier effect of housing related expenditures generates approximately $10,724 or 16.1% of the purchase price back into the economy. As in California, the sale of a newly constructed home in Illinoi generates approximately $33,517 or 50.3% of the purchase price back into the state’s domestic product.

Sources for this piece include US Census Bureau, NAR, Macroeconomic Advisers and the BEA.

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