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How Does The Economy Affect The Housing Market?

What are the Pros and Cons of Selling a House for Cash?

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Are you one of the millions of Americans who are finally starting to breathe a sigh of relief after the recent pandemic, and wondering how does the economy affects the housing market?

Perhaps you were ready to either buy a house or to sell your house – or both – before the virus hit, so now you’re getting ready to pick it back up again.

Housing markets, thus housing prices, are affected by several key factors, with the economy a part of the majority of them. In this post, we will discuss these factors, and how they affect the real estate market today. 

The GDP  

House prices are directly affected by the economy, of course, as well. The housing market is a huge part of the overall economy as it’s incorporated into the GDP, or gross domestic product, which is the prominent measure of economic activity, in a couple of different ways.

One of these ways is through housing supply, and whether or not there’s a high demand for new homes. This is done by totaling construction costs of new single and multi-family homes, residential remodeling, and broker’s fees taken from places like the National Association of Real Estate Brokers and the National Association of REALTORS, and this total is referred to as the amount of residential fixed investment. 

The second way of incorporating housing markets into the GDP is to total the amount spent on housing services, including rent for renters, housing utility costs, and homeowners’ monthly mortgage payments imputed as rent, and utilities.

The total number from both of these categories represents the portion of the real estate market that accounts for the condition of the overall economy. In 2020, the housing market accounted for 17.5% of the GDP, at over three and a half-trillion dollars, and seemingly rising to new heights, as recorded headed into 2021. 

Consumer Spending 

Consumer economic activity and spending have a direct impact on the economy, which market research shows makes up about 70% of the overall economic health of our country. When there is a high level of consumer spending and economic activity, and the supply of homes is plentiful within our home building societies, the economy is strong and house prices increase.

In this scenario, buyers enter the housing market with anticipation, and the increase in home prices does not dissuade them because they are confident in the economy. 

However on the contrary, when spending is low and widely guarded by consumers, there are fewer people able to afford house prices and housing markets are affected negatively. Legitimate interest in good housing starts to decline.

Lower demand for new houses as well means a decline in housing construction, to begin with. This in turn reflects home sales, as well as available supply. However, this limited supply and decrease in home construction can also drive home sales up, even in a poor economy. 

Interest Rates 

One of the biggest things to affect the housing market is interest rates. Many homeowners wait for low-interest rates to buy a house, so when interest rates rise due to a weak economy, home sales go down and the housing market is affected negatively.

House prices go up, but the demand for housing goes down. With adjustable-rate mortgage loans, if the interest rates rise, so do the payments. This causes more defaults, thus more foreclosures, which are typical of a market crash. In a poor economy, the housing market typically suffers.   

Financial Crisis  

Of course, those who may be looking to buy a house may see a “bad” housing market as a good thing! It brings house prices down, and that makes it easier for potential buyers who would normally be unable to afford to buy one to consider entering the housing market. The recent pandemic has caused a financial crisis for the economy not just in the United States, but all over the world. Different measures had to be adapted, so as to avoid a major recession. 

In some cases, this kind of crisis can cause nontypical results. Strangely enough, though the current unemployment rate in the U.S. estimates more than 10 million Americans out of work, news and newspapers report the expectation for an economic boom rarely seen in history. Because of the worldwide state of quarantine and emergency, millions of people all over the world lost their jobs. 

Government policies changed, and stimulus money was generated by the Federal Reserve. Lending standards changed drastically to assist those in need, and interest rates reached record lows. Even though the economy was weak, in most of America the real estate housing market thrived.

All this was historically unprecedented, and how the global economy bounces back – or doesn’t – is yet to be seen, but certainly, housing markets everywhere will be affected. 

Employment and Income 

These two factors are important to the economy and thus housing markets everywhere. Employment and average incomes are of course vital to a strong economy and have a significant impact on determining house prices and home sales. When housing starts to become less affordable due to an increase in home prices, home sales go down.

But when employment is thriving and income levels increase, this is usually indicative that house prices will also go up. Currently, the economy is in a state of a sort of “limbo” with the unemployment rate still at record highs. It remains to be seen how significantly the overall economy will be impacted. 

Sell Your House Fast – Las Vegas 

Here at

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, we understand that there are a lot of situations that have occurred for people, either directly or indirectly due to the Coronavirus pandemic and its effects.

If you are in a situation where you need to sell your house fast for cash,

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by filling out the short form right here on our website home page for a free, no-obligation cash offer. We provide the fastest cash home buying system and the best offers in Vegas, and we operate with integrity and fairness. 

In our uncertain economy, you


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