Thursday, October 7, 2010

Question: How Does Real Estate Affect the U.S. Economy?

Answer: Real estate contributes 10% of the total U.S. economy's output. If real estate declines, so do construction jobs, thus potentially increasing unemployment.

A decline in real estate sales evenutally leads to a decline in real estate prices. This then reduces the value of everyone’s homes, whether they are actively selling it or not. This then reduces the amount of home equity loans the homeowner can get. This, then, reduces consumer spending.

Over 70% of the U.S. economy is based on personal consumption. A reduction in consumer spending will contribute to a downward spiral in the economy. This results in further unemployment, further reduction in income, and further reduction in consumer spending. If the Federal Reserve doesn't intervene (by reducing interest rates, then the country could fall into a recession. The only good news about lower home prices is that it lessens the chances of inflation.

Provided by Donna Antonucci
Prudential Castle Point Realty

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