How The Economy Affects The Housing Markets

How The Economy Affects The Housing Markets And Homebuyers

Gustan Cho Associates are mortgage brokers licensed in 48 states

This ARTICLE On How The Economy Affects The Housing Markets Was PUBLISHED On March 9th, 2020

Many home buyers want to know How The Economy Affects The Housing Markets.

  • There are multiple factors on How The Economy Affects The Housing Markets And Homebuyers
  • The economy has both a direct and indirect impact on the housing markets
  • In general, when the broad economy is good, the housing demand is high
  • More and more home buyers want to purchase a home with a healthy economy
  • Consumers often feel secure with a good economy
  • Jobs are ample, wages are on the uprise, and consumer confidence is strong
  • On the flip side, when the economy is uncertain and/or bad, consumer confidence levels are low. Consumers do not want to spend
  • Many fear their jobs is uncertain
  • Homebuyers will delay buying a home due to uncertainty in the marketplace
  • The bottom line is that the economy has a major impact on the housing markets

In this article, we will cover and discuss the impact on How The Economy Affects The Housing Markets And Homebuyers. The housing market also has an impact on the economy. If the housing market is doing well, it is a good indication the economy is healthy.

Housing Data And How The Economy Affects The Housing Markets


There are two components to the housing market:

  • Housing Starts
  • Home Sales Data

The housing data is the number of new housing in the marketplace.

  • It is the number of new construction in residential homes
  • This number is tracked on new homes that are started every month
  • During times of great economic times, more people are willing to purchase new homes
  • However, during bad economic times, fewer people tend to purchase new homes
  • New housing starts is one of the major factors in determining economic numbers
  • Growing and the high number of housing starts means that the economy is doing well

In the next paragraph, we will further discuss what home sales date means and how it impacts the overall economy.

Importance Of Home Sales Data In Determining The Health Of The Economy

Alex Carlucci, a senior loan officer at Gustan Cho Associates and monetary policy expert for Gustan Cho Associates News says the following about home sales data:

Home sales usually are directly tied to an economy’s health and rise and fall with economic activity. As economies slow, the supply of money tends to become more restrictive. As money becomes harder to borrow, fewer home buyers enter the housing market. With restrictive lending requirements making fewer buyers available, inventories of homes go up or take longer to sell. A greater supply of a product coupled with lower demand for it generally forces prices downward. San Francisco enjoys a reputation as one of the most sought-after housing markets in the country due to the city’s booming economy. Although the West Coast economy continues to grow, housing sales began slowing down in some of California’s hottest cities including Los Angeles, San Diego and San Jose in the latter part of 2018. Conversely, San Francisco home buyers continue competing with each other by bidding up the price over the fair market value and paying the difference out of pocket. The trend is expected to eventually slow as the pool of buyers able to afford the median cost of a home of $1.3 million or more in the Golden City declines. The supply of money in an economy is critical to its overall health and especially to housing market health. If money’s too difficult to borrow, housing starts and home sales can dry up. If money’s too easy to acquire, too many buyers enter the housing market, driving up prices for a while until the inevitable market correction or even crash occurs. Ideally, housing construction and home sales markets should align with economic activity, but that’s sometimes not the case.

What Alex Carlucci states above is common sense.

Depending on the economy we are currently facing, the housing markets work in different ways.

How The Economy Affects The Housing Markets During Slow Economy

The residential housing market is negatively impacted during a slow economy. When interest rates are rising, home sales will slow and weaken. When interest rates drop, home sales normally rise. This is because more people will pull the trigger during times when mortgage rates are low. When the economy is in a recession or there is a fear of a recession, this affects home sales. The housing market has been strong during the past three years due to the healthy economy. HUD and the Federal Housing Finance Agency have both increased FHA and Conforming Loan Limits for the past three years due to rising home prices. FHA Loan Limit for 2020 is capped at $336,760. 2020 Conforming Loan Limits is now capped at $510,400. Trump recently signed a bill exempting maximum VA Loan Limits on VA Home Loans. Home prices have been increasing with no signs of a correction. Many would-be home buyers staying on the sidelines are now pulling the trigger and plan on buying a home. Mortgage rates are at a three-year low today. With low rates, a healthy economy, low unemployment numbers, low housing inventory, home sales are expected to increase in the coming months.

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