As real estate agents, we have to wear several hats and be knowledgeable in multiple areas of study. We must not only be knowledgeable salespeople but also economists, consultants, and advisors to our clients. Understanding how the economy works and being able to communicate it is a powerful differentiator. Being conversational in housing economics quickly earns the trust of future clients and the referrals of your past clients and sphere! 

In this first installment of a series on the economic drivers of the American economy and the residential real estate industry, we’ll do a crash course on the concept of Gross Domestic Product (GDP), understand its influence on the housing market, and its role in determining economic recessions. 

What is GDP, and why should I care?

So let’s start with a basic economic question:  “What is GDP? And as realtors, why should we care?” 

GDP, or Gross Domestic Product, is the total monetary value of all goods and services produced within a country’s borders in a given time period. It offers snapshots of how large our economy is and if it’s growing. The rate of its growth (or contraction) serves as an economic scorecard or sorts. This scorecard is used by policymakers, investors, businesses – and now you – to understand the health of an economy. And in your case, to help your clients make informed decisions. 

So GDP is growing when more goods and services are being consumed. A mature, established industrialized nation like the American economy aims for a 2.5 to 3.5 percent annual growth rate.

Why is GDP growth crucial for us as real estate agents? Well, if there’s an increase in the number of goods and services being purchased, it creates a healthy economic cycle: Businesses hire more employees to meet the demand for their goods and services. As people are employed and salaries are robust, they’re spending. This generates more demand across the board: for more goods and services, and as it relates to Realtors, more demand for housing. Stated simply: GDP growth equals more demand for housing transactions. 

To illustrate this, consider the contrast before and after the Great Recession. In 2005, when the economy was booming, there were ~6 million real estate transactions. In 2012, at the bottom of the Great Recession, there were only ~4 million transactions. A healthy GDP boosts the number of housing transactions, benefiting both sellers and real estate agents. 

What about GDP and recessions?

Now, let’s talk about recessions. A recession is traditionally defined as two consecutive quarters of negative GDP growth. If GDP is consistently contracting rather than growing, that’s a clear sign of a recession. 

Are we in a recession now? At the time of publishing this blog, we have not experienced two consecutive quarters of negative GDP growth. So we are not in a recession. Our economy is healthy and continues to grow. Interestingly, even though our economy is not in a recession, it certainly feels like our industry is in a recession! We have dropped somewhere between 25-30% in sales year over year. However, this is not due to a weak GDP – it’s due to a lack of seller inventory. Why is that? That’s a subject for another blog post! 

The “Economist of Choice”

So why should you, as a Realtor, pay attention to GDP and other economic drivers? A mentor once told me, “You want to be the economist of choice for your sphere of influence.” Two reasons underpin this advice:

First, consumers are attracted to salespeople who are confident and competent, especially when making crucial financial decisions like transacting real estate.

Second, you want to train your sphere of influence to come to you, not the media, for economic information and interpretation. The more they turn to you for economic information, the more likely they are to consult with you when making significant financial decisions, like transacting real estate. 

By understanding GDP, you’re not just expanding your knowledge – you’re giving yourself a competitive edge. It positions you as an informed advisor to your clients. They’ll see you’re not just versed in property details but also in broader economic indicators. Your understanding of GDP and other economic factors will draw them to the confidence and competence you demonstrate, making you their go-to person for real estate transactions. 

Stay tuned for more discussions about the economic factors that drive our industry. Thanks for reading!