How Does The Housing Market Affect The Economy?

For US citizens, home ownership is part of the American dream. Real estate provides a place to live for families and is a great source of wealth and savings. However, changes in the prices of the housing market affect the economy in both negative and positive ways. In Forbes' article, "There's No Place Like Home- The Housing Market and Economic Growth," the effects that the housing market has on economic concepts and principles are discussed. Like all things in the economy, everything has a cost. For example, when the economy is in a recession, the housing market goes down, making the demand for building new houses and buying or selling existing houses decrease. These economic actions also create secondary effects making the unemployment

As of 2014, the official unemployment rate in the U.S. was 5.3% and over the following year 2.9 million jobs were created to help drop the unemployment rate. As the article states, according to the National Association of Home Builders (NAHB), the construction of the average single family new home creates worker income which is equal to 2.97 new jobs for a year. As of June 2015, the construction for new homes were around $1.174 million on an annual rate, which is a 16.2 percent increase from the previous years' June-July period of $1.011 million. This increase of 163,000 added home construction is equivalent to around 485,000 well paying jobs (“There's No Place Like Home - The Housing Market And Economic Growth”

Consumers act rationally in their best interest, so if their income increases, then consumer spending will also increase. As consumer spending increases, the value of their homes will also increase. With more consumers in the market looking to buy or sell houses, there will be more competition, which can drive the prices up. The increase in demand for houses increases the demand for more workers too, decreasing the unemployment rate. In contrast, when the economy is in a recession the housing market also falls into a recession because if no one has the money to purchase a new home, they will not, consumers will cut their spending. In addition, since there is little competition in the housing market, the price of selling and buying a home will also decrease. This decrease in price of a home is good for the buyer but not for the seller; what is good for one, may not be good for all. The decrease in the number of buyers and sellers in the market decreases the demand for jobs within the housing sector, increasing the unemployment rate. Consumer's confidence reflects the willingness for consumers to spend more money. If consumers are confident with their income, their willingness and ability to purchase additional goods and services increases. Likewise, if consumers are not confident in their income, they will be more hesitant to purchase goods and services that are not