Homeownership sparks economy in many ways

Home prices are up nationwide. The recent demand has been good for more than just realtors and lenders.

U.S. housing prices for October are up 6 percent over last year, the biggest jump since 2006 and a hopeful sign of a rebounding economy. Many eyes are on the housing market because every decision new homeowners make -- from re-painting the living room in Umbrian Sand to making sure all the light switches in the hallways match -- impacts the economy.

If you’re a renter, you may worry you’re wasting money by not investing your rent dollars, but at least you don’t have to worry about taking on the role of handyman and trying to figure out how to rip out that weird, too-big fireplace on the second floor of your new house. Mark Corbin, a new homeowner in South Orange, N.J., says reshaping the walls of his new home took the power of a sledge hammer.

“And friends,” he said.

Corbin and his wife had been renters for the past 10 years until spring, when they bought their new house, and, Corbin says, a lot more supplies than they expected.

“Sheet rock and plywood and mud and paint and tools and all the stuff you never need when you rent because you have a landlord,” he said.

Now Corbin has shag carpet to rip out, and unless he decides he’s a fan of pastels, pink and lavender walls in his new upstairs office and guest room to paint over. But the upkeep of a house isn’t limited to its four walls. No new homeowner can forget the yard -- front and back. Corbin and his wife also purchased a lawnmower, weedwacker and sprinkler. Luckily for the couple, their new basement is a spacious one.

“I don’t know of anyone who can move in and just sit and just be happy with the way everything is. There’s always something else that needs doing or repairing,” Corbin said.

All this spending may be tough on Corbin’s wallet, but it means good news for the economy. After all, it’s the enthusiastic spending by new homeowners like Corbin that help drive it.

To understand how easy it is for new owners to be lured into spending, one only needs to consider this fact: at Home Depot, the temple of home repairs, there are 600 choices available when purchasing a toilet.

The flurry of spending can start with something as simple as the purchase of a door knob. Vinnie Merlo, Home Depot’s local district manager, explained to me that of course you want all your fixtures, inside and out, to match.

“The brushed chrome on the outside. Now the brushed chrome has to be on the inside,” he said.

The door knob leads to hinges, and perhaps even a new door. After all this spending, you need to save so you consider a new,  energy-efficient storm door, albeit one with a full window panel through which to admire your new purchases. And, well, you see where this is going. No other single consumer purchase ripples through the economy like the sale of a house -- old like the Corbin’s, or, brand new.

Susan Wachter, a professor of real estate and finance at Wharton, says a home is the single, major purchase households make.

“If someone is buying a new home, a newly constructed home,that has immediate consequences in terms of construction jobs,” she said.

The rule of thumb, Wachter says, is for every newly constructed house sold, one new job is created, but that is just the beginning. The new job means a new paycheck which means spending. The cycle repeats. Though the housing market has been off, Wachter says it’s beginning to come back.

“As the housing market improves, housing prices increase. And that has a wealth impact. People are wealthier, they feel wealthier, consumer confidence increases,” she says.

But not every consumer is feeling confident enough to take on an old house. For Paul Woodiel, also of South Orange, N.J., the love affair with old homes is over.

“Totally over for me. Totally over,” he said.

Woodiel’s last home was old, so this time he bought new and he and his wife have barely had to lift a finger to make changes to their new home. But, there is a catch.

“To be honest, we paid more than we wanted to pay for a house, but that’s what we paid for," he said.

The lesson Woodiel says he’s learned is this -- you can pay now, or you can pay later, but homeowners always have to pay.

About the author

Sally Herships is a regular contributor to Marketplace.

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