Housing Prices and Its Impact on Economy

Rising Cost of Housing

Housing has become more and more burdensome these days and there are many reasons for it. It not only affects individual’s financial behavior but also of the whole economy. The recent recession has added fuel to the fire and it reached its peaks in the past few years. While buyers experience bad pricing, sellers can take advantage of this situation. Let us see how the changes in housing prices affect the economy as a whole.

Economic growth:

A rise in housing prices encourages consumer to spend more. Though it is little burdensome, it is beneficial to the economy resulting in economic growth.

Dropping in prices affects badly:

A small fall in the prices of housing affects the economic growth adversely and hinders the confidence of consumers. This may challenge economic growth and results in recession.

Redistribution of wealth:

When you own a house, your financial and social status increases. The rise in prices increases the wealth of the property owners and decreases the life standards of non-owning parties. This results in redistribution of wealth in an economy.

Increase in confidence:

A purchase brings a sense of confidence in buyers. If you buy a house, you can always have a confidence that your wealth has increased. With this, the amount that they spend on borrowing and credit cards will boost up. They also have the advantage of selling the house in case of immediate requirements you can find out more.

Rising Cost of Housing

Increase in spending power:

Rise in housing prices increases the spending power of the consumers. Since the rates are high, banks have raised the loan amounts and  offering bigger mortgages.  The big loans received can be spent on other items resulting in increased spending power.

Direct proportional relationship with banks:

The increase in housing prices and value of assets for banks have direct relationship. If house pries increase, banks experience increase in their assets value. Since they more and more house loans for longer periods of time, they can increase their equity value and thereby their properties.

If the housing prices fall, banks will experience a decrease in their property value. If falling housing prices are coupled with higher interest rates then that will be more dangerous to bank growths.:

Effect on real estate market:

If house prices fall, construction sector will face drastic losses. People will fear building new homes and there will be no movement in the industry. This decline will lead to lower economic growth.

Rise in housing prices has various impacts on different industries. While it is not advantageous for certain industries, it boosts economic growth in some cases.

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