How Does Real Estate Affect the Economy

This week, we received a question from a viewer: does real estate affect the national economy, and how?

Of course, it does! Real estate is one of the primary drivers of economic activity in the country, from the transactions of buying and selling homes to all the related activities. Think of each individual home in the country -- all your neighbors, all the areas you drive through each day, and all the homes that you pass. Each one represents an investment by someone - usually a family - and the hard work that they are putting in so that they can own this piece of property.

For example, when Head Trainer, Robert Rico, bought his first house, in 1993, it cost him only $106,000! This sounds like a very small amount of money right now, but it’s still a significant amount to save. In the long run, a home is like a savings account for the homeowners -- since property values, over time, will trend upward. A home is a great place to put your money.

If you own property and hold it long enough, it can be treated like a savings account - and the Ricos were able to sell that house later for close to $400,000! That’s an enormous increase in the value and enabled them to do things like go out to dinner, and spend money on various things, which thus increases value in the national economy.

Because homes also require a lot of maintenance and upkeep, that’s another whole category of economic activity simply because it creates jobs. There will always be a need for gardeners, construction workers, and home repair workers. This drives the economy because those people drive vehicles that cost money, they use fuel which drives the national economy, and they also own or rent their own homes - and the cycle keeps going.

Home improvement is also another huge driver of economic activity. Like the gardeners and construction workers, home improvement contractors will also have to drive trucks, spend money on fuel, and further drive the economy. When people improve their homes, they buy raw materials, which drives the economy (for example, the lumber and metal industries).

If we think of the time between 2007-2008, what happened? Home values dropped, so the equity in people’s homes disappeared, and they no longer had money to spend on other things. This recession affected the economy drastically, putting people out of jobs and putting people out of money. It slowed down the economy as a whole - which is why we called it the great recession.

So to answer our reader’s questions - Does all this real estate activity drive the economy? And to that, we say, OF COURSE!!! Whether you own, invest, or work - you are driving the economy and helping it grow.

See you next week for our following blog post - and don’t forget to subscribe to our YouTube channel!