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The Housing Market Effects on the Economy

Unless you are a caveman in an area where no other human being can affect your welfare, you are most certainly going to be affected by the activities of the economy. An economy, as defined and abbreviated by Wikipedia, is the realized social system of production, exchange, distribution, and consumption of goods and services of a country or other area.  Therefore, an economy involves everything you own, including the lifestyle you have, and the activities that take place in your life. Today, one of the biggest challenges the U.S. economy is having has to do with the crisis that is currently going on with the housing market. Below is a brief description of the effects of the housing market on the U.S. economy.  

To an individual who owns a house, the purchase of that house may be one of the biggest investments they have or will ever make.  Therefore, the response it has to the market and vice versa can take a large toll on that individual's life depending on their involvement with that investment. Unless a homeowner is paying cash in full for a property, a home purchase is generally done with a mortgage attached to it. This is a legal instrument that states the terms needed to be met by the borrower so that the borrower can move into their desired property. It is a promise between the bank and the borrower, stating that the property will belong to the borrower until the loan or mortgage is paid off. If the borrower defaults on payments for the property, the mortgage holder or bank then has the right to foreclose on the property and evict the homeowners.

A home that is foreclosed affects the value of the properties surrounding it. For example, during a loan process, the equity (or difference between the value of the property and the amount owed) is first determined by a report generated by a certified appraiser. The appraiser will physically go into the subject property, make an analysis based on the property conditions and its surrounding areas, and determine its appraised value by comparing it to properties that have recently closed escrow or have been foreclosed on.Property values play a significant factor in the status of the housing market and the economy. During the housing boom that began in the early part of the 21st Century, the U.S. economy soared. As equities increased, so did consumer spending. As a result, more businesses opened up and more jobs became available. The stock markets also soared with interest rates at record lows.

Many people knew the housing market bubble was bound to pop at any time. After all, what goes up must eventually come down, right? Subprime lending loosened their guidelines to increase nationwide homeownership. People who were unable to pay for their mortgages were given loose options to open up new accounts so they can be encouraged to purchase homes they couldn't afford. After values increased and equity lines were stripped, foreclosures and mortgage defaults took their place. Eventually, supply increased and demand decreased causing a tremendous toll on the U.S. economy.