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The Economic Impact of a Typical Home Sale in Minnesota

By MNR News posted 06-06-2023 01:09 PM

  
Homeownership is the greatest wealth generator for low- to middle-income Americans. This is the most important fact to remember during National Homeownership Month in June. In the U.S., the net worth of a typical homeowner is nearly 40 times higher than that of a non-owner, according to National Association of REALTORS® (NAR) data. But the economic impact of a home sale extends far beyond the individual transaction itself. Let’s take a look at four ways a home sale positively impacts local and state economies.

Multiplier Effect
Home sales have a significant “multiplier” effect on the economy. Each home sale generates a ripple that stimulates various other sectors, such as construction, real estate services, home improvement, and retail. For example, a home purchase typically involves spending on furniture, appliances, and renovations, which supports local businesses and creates jobs.

Job Creation
A robust housing market leads to increased demand for real estate agents, appraisers, mortgage lenders, home inspectors, and other related professionals—primarily jobs that fall under a state’s commercial sector. Job creation in this sector not only supports real estate careers but also contributes to overall economic growth and stability. 

Property Values and Taxes 
Home sales help establish property values within a state, which is an important factor for property tax assessments. Property taxes are a significant revenue source for local governments and fund public services, including schools, parks, and public infrastructure. 

New Home Construction 
A robust housing market drives demand for new construction and housing-related industries. Increased home sales spur new residential construction, which can generate jobs and stimulate economic activity for building materials, contract work, architecture, and interior design. Unfortunately, new build market conditions and affordability hurdles continue to hold back buyers in Minnesota, where new construction sales lag compared to neighboring states. 

What's the typical economic impact of an “average” home sale in Minnesota? Data from NAR’s recent study, State-by-State Economic Impact of Real Estate Activity, gives us the answer. The real estate industry accounted for $69.5 billion or 15.6% of the gross state product (GSP) in 2022. The GSP includes the value of goods and services produced by various sectors, including agriculture, manufacturing, construction, and commercial (the real estate industry falls under the commercial sector). 

The total economic impact of a typical home sale in Minnesota:

$118,200 

Type of economic impact Amount Percentage of total ($118,200)
Income generated from real estate industries $33,156

28%
Expenditures related to home purchase $5,240 4.4%
Multiplier of housing-related expenditures $18,430 15.6%
New home constructions $61,399 51.9%

Notes on this data from NAR Research Group: 

Real Estate Industries: We assume that commissions, fees and moving expenses, or income to real estate industries, associated directly with the purchase are about 9% of the median home price.
Expenditures related to home purchase: Furniture and remodeling expenses are about $5,240 based on the NAHB figure. 
Multiplier effect: The multiplier effect accounts for the fact that income earned in other sectors of the economy as a result of a home sale is then re‐circulated into the economy. 
New construction: Additional home sales induce added home production. Typically, one new home is constructed for every six existing home sales. Thus, for every existing home sale, 1/6 of a new home's value is added to the economy. 

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