How is housing related to economics?

The indirect impact of housing on the economy House prices can affect residential investment and, therefore, affect economic growth. Rising home prices are likely to encourage additional spending on construction to take advantage of higher prices, which will lead to stronger economic growth. Changes in home prices, rents, and mortgage interest rates can affect household incomes and wealth, as well as how much money they spend and on what. Housing costs and policies can also determine where people choose to live, work and study, as well as their ability to move or change jobs.

Both an investment good and a consumer good are traded in markets that are subject to significant search frictions and information asymmetries. In addition, housing represents a large part of the wealth of the economy. As a result, changes in house prices can have large effects on aggregate economic activity. Combined with the availability of excellent microdata on housing transactions, this makes housing an ideal asset for studying a range of issues of broader economic interest.

In this article, I summarize a series of findings that emerged from my empirical research on housing markets. Kimberly Amadeo is an expert in the USA. UU. And global economies and investment, with more than 20 years of experience in economic analysis and business strategy.

She is the president of the economic website World Money Watch. As a writer for The Balance, Kimberly provides information on the state of the current economy, as well as on past events that have had a lasting impact. Real estate plays an integral role in the U.S. Residential real estate offers homes to families.

It's the biggest source of wealth and savings for many Americans. Commercial real estate, which includes apartment buildings, creates jobs and space for stores, offices and factories. Real estate businesses and investments provide a source of income for millions of people. Real estate construction requires a lot of labor and is a major force in job creation.

The fall in housing construction largely contributed to the high unemployment rate of the recession. Construction is the only part of real estate that is measured by GDP. However, real estate affects many other areas of economic well-being that are not measured. For example, a decline in real estate sales eventually leads to a decline in real estate prices.

That reduces the value of all homes, whether homeowners are actively selling them or not. Reduces the amount of home equity loans available to homeowners. This ultimately reduces consumer spending, as more homeowners' money is invested in housing projects. The economy is based on personal consumption.

The reduction in consumer spending contributes to a downward spiral in the economy. It leads to further declines in employment, incomes and consumer spending. If the Federal Reserve does not intervene by reducing interest rates, the country could fall into a recession. The only good news about lower house prices is that it reduces the chances of inflation.

When borrowers stopped paying, mortgage-backed securities were of questionable value. So many investors tried to exercise their credit default swaps that AIG ran out of cash. The Federal Reserve had to rescue him. Most Americans believe that the housing market will plummet in the next two years.

They see that house prices are stagnating and that the Federal Reserve is starting to lower interest rates. To them, it looks like a bubble about to burst. An emerging literature has begun to explore the effects of changes in house prices on household consumption behavior and on real economic activity. The work of the OECD shows that economically vulnerable families are more affected, that housing inequalities have come to the fore, political compensations have become more visible and that there is a risk of a short-sighted revision of political frameworks.

This effect is greater for homes whose value depends more on the characteristics of the neighborhood, and lower for homes purchased by more informed buyers. In general, these documents highlight the capacity of real estate market data to shed light on the effect that various market frictions, such as search frictions or asymmetric information, have on the results of the equilibrium market. We propose that real estate agents be better informed than other households on issues such as demographic trends at the neighborhood level. In fact, survey data shows that people whose geographically distant friends have experienced greater recent increases in the price of housing consider local ownership to be a more attractive investment, with greater effects on people who regularly discuss those investments with their friends.

Fluctuations in the costs of building materials, particularly those of wood for building structures, contribute significantly to home prices and to levels of housing affordability. Consequently, any difference in price between absolute and leased properties would reveal the presence and magnitude of a rational bubble in the housing market. We then argue that margins increase with house prices, particularly in places with high homeowners, because greater real estate wealth reduces the elasticity of homeowner demand and, in response, companies increase margins. We estimate the difference in prices between leased properties and absolute properties with different maturations using hedonic regressions, using data on the universe of real estate transactions and the associated property characteristics since 1994.However, the MPC is unlikely to raise interest rates just because house prices are rising at a rapid rate.

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