Realities of Real Estate: How the economy affects real estate

Real estate is such a large part of gross domestic product, or GDP, that some believe significant changes in the housing market can affect the trajectory of our economy as a whole.

Case in point would be the Great Recession, where deflating the housing bubble nearly collapsed the entire financial system. However, that situation was the exception, rather than the rule.

Under normal conditions, the relative strength or weakness of our overall economy is what charts the course for housing. In a vibrant economy, jobs are plentiful and the personal mobility/income that results is translated into strong numbers for home sales.

Conversely, in a weak economy, major purchases (like a new house) are quickly tossed into the discretionary dump bin as families hunker down and focus on the necessities. As a result, understanding how the economy works and what makes it go up or down is an essential part of projecting the future for real estate.

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