by Calculated Risk on 10/31/2008 11:49:00 AM

We frequently discuss "residential investment" (RI) without mentioning the components of RI according to the Bureau of Economic Analysis (BEA). Residential investment 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 ($175.2 billion SAAR) is almost at the same level as investment in single family structures ($176.0 billion SAAR) in Q3 2008.

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 (related to RI in single family structures).

Currently investment in single family structures is at 1.22% of GDP, significantly below the average of the last 50 years of 2.35% - and just above the 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 1.21% of GDP, off the high of 1.3% in Q4 2005 - but still well above the average of the last 50 years of 1.07%. Maybe lenders are boosting home improvement spending fixing up all those damaged REOs!

This would seem to suggest there is significant downside risk to home improvement spending over the next couple of years.