Residential investment, according to the Bureau of Economic Analysis (BEA), includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.
Click on graph for larger image in new window.This graph shows the various components of RI as a percent of GDP for the last 50 years. The most important components are investment in single family structures followed by home improvement.
Investment in home improvement was at a $170.8 billion Seasonally Adjusted Annual Rate (SAAR) in Q4, above investment in single family structures of $150.2 billion (SAAR) for the first time ever.
Let's take a closer look at these two key components of RI:
As everyone knows, investment in single family structures has fallen off a cliff. This is the component of RI that gets all the media attention - although usually from stories about single family starts and new home sales.Currently investment in single family structures is at 1.05% of GDP, significantly below the average of the last 50 years of 2.35% - and also below the previous record low in 1982 of 1.20%.
But what about home improvement?
The third graph shows home improvement investment as a percent of GDP.Home improvement is at 1.20% of GDP, off the high of 1.30% in Q4 2005 - but still well above the average of the last 50 years of 1.07%.
This would seem to suggest there remains significant downside risk to home improvement spending over the next couple of years.