How does the housing market affect the economy?

Monday, June 22, 2015
 | 
Chris Woodward (OneNewsNow.com)

An expert on the issue tells OneNewsNow why Americans should care about the housing market.

The past experience of Mark Calabria, director of financial regulations studies at the Cato Institute, includes working for the National Association of Realtors and the U.S. Department of Housing and Urban Development (HUD). Based off his expertise, he says that the housing market historically leads society in and out of recessions.

"It's the most volatile sector of the economy. Even in this past recession, about 40 percent of the job losses directly were related to the housing market," he cites. That affected "construction jobs, real estate jobs [and] mortgage jobs. You don't see this kind of fluctuation even in manufacturing, which, of course, does fluctuate. But it's not an exaggeration to say that the housing market is the business cycle."

Calabria adds that America currently has a 64 to 65 percent home ownership rate. And even though not everyone is planning to sell their home right away, everyone does care about the value of their home.

"Of course the value of our house does drive spending. For instance, one of the reasons the economy was so strong in, say, 2005 and 2006 was because people were spending out of their housing wealth, and it does impact consumption that way," the economics expert explains. "So, whether you're going to go out and buy that new car often does depend on whether you can take equity out of your house, or even how confident you feel in your house. And, of course, for most families that do own, it's the largest source of wealth."

He adds that even the typical business man's house is often worth more than his business.

"So, it's an important part of household balance sheet, important part of the economy [and a] really important part of the job market," Calabria reiterates. "Of course, one of the real reasons that the job market has been slow to recover is that the construction job market really has lingered. That," he concludes, "has been a big damper on the economy."

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