David Crowe

Chief Economist 


Washington, D.C.

Anje Jager/agencyrush.com David Crowe Chief Economist NAHB Washington, D.C. dcrowe@nahb.com

How can the fate of the U.S. housing market be dependent upon electric bills in Greece? While that may be an overstatement, it has become apparent that international events do have a dramatic impact on the U.S. economy. Just think back to the Middle East riots causing a sudden and sustained rise in oil prices that translated into $5 a gallon pump prices.

International trade is a larger component of the economy than ever before, and trading partners’ economic health affects our exports, which in turn affects domestic jobs, and jobs affect home buyers’ willingness to buy.

U.S. exports were 3 percent to 4 percent of GDP in post-WWII years but have steadily increased to a high of 13 percent last year. Since 1989, exports’ share of GDP has almost doubled. The primary drivers have been professional services (including royalties and licensing fees), industrial supplies (such as steel and other metals), and consumer goods (such as pharmaceuticals, appliances, and furniture). In general, the exported goods and services require skilled and trained labor inputs.

The recent boost from increased exports has helped propel employment and GDP forward. However, international trade benefits are offset by imports, which reduces the GDP because the spending does not directly benefit U.S. output or generate domestic employment. Imports were 3 percent of GDP in the post-WWII years but have steadily increased to a high of 17 percent in 2007 and remain near that level.

The two largest import categories are consumer goods and intermediate goods such as machinery and computers. The U.S. imports six times as much in consumer goods as we export. An expansion of imports over exports sends dollars and jobs overseas as retailers and consumers choose goods based on price. Goods with high labor inputs are produced in low-cost labor markets.

But the interaction in international trade does not stop there. U.S. exports are also dependent upon the economic health of the country buying our products and services, and in turn that country’s health depends upon its own economic condition as well as the health of its trading partners. Worldwide economic growth has slowed from an annual rate over 5 percent in 2010 to 3 percent to 3.5 percent in 2011 and 2012. While better than expected U.S. growth, the shift has meant slow growth in trade and a slowdown in the fast-expanding U.S. export markets such as China, Japan, the United Kingdom, and Germany.

Some European economies have been weakened by the need to cut back on government spending in order to reduce government deficits (yes, the U.S. is not alone). As neighbors and, for many, participants in the Euro, interaction effects through trade are strong. Adding to the contagion effect, several countries must reduce government debt and are contracting further. At the same time, the stronger countries’ promises to help, Germany and France in particular, mean they must devote more of their domestic resources to support the weaker economies.

Greece has reduced spending, laid off government workers, and increased taxes. Tax avoidance is a major problem in Greece so the increase in property taxes is billed through electric bills. Non-payers will lose power.

The curious link between Greek tax structure and the U.S. housing market is just one example of how fragile this recovery has become. Weak domestic demand remains the chief direct culprit holding back the housing consumer. New-home sales are likely to report a 48-year record low in 2011, barely breaking 300,000. Existing single-family home sales will be 4.3 million, similar to 2010 but about one million are sales to investors rather than the owner-to-owner transaction indicative of a healthy market. Consumers remain concerned about their individual economic future so are still reluctant to commit to a major purchase such as a home. Adding an overhang of existing homes in some markets only dampens the desire more. While a housing recovery remains within sight, the scene has many dangers.