Real Estate

I heard on CNBC just now that the drop in home sales is the largest in 16 years.

Will this cause a slow in consumer demand by causing less profits all around due to most economic activity being centered around housing?

Is this true or not? why?

Yeah there will be a slowdown, but I believe people have forgotten the biggest reason as to why it slows down the economy. The reason is this: with demand for housing slowing, the prices of houses fall, which in turn decrease average household wealth. The housing bubble that was created in the last couple of years led to huge increases in family wealth as household values skyrocketed. The drop in household prices will have an equal drop in family wealth. This will lower consumption as there is now less disposable income for each family.

4 Responses

1. davey babes Says:
   December 13th, 2009 at 5:09 pm

   I think associated business like carpets, furniture, electrical appliances, removals, gardening, finance suffered the last time this happened a few years back. People try and make do with the property they have, i’m sure it will pick up again soon.
   References :

2. Allan Says:
   December 13th, 2009 at 5:29 pm

   Yes, it will slow down the entire economy to some extent. Why? Because we are all inter-connected. If a construction worker loses his job, he will not buy a car that year, or he will postpone buying a new cell phone. That means that other businesses will lose potential sales, leading to other layoffs and losses in income.

   How much will this affect the economy? Lastest estimates suggest that the slowdown in housing is about over, and the overall economic slowdown will be a "soft landing" rather than a crash.
   References :

3. crapola5 Says:
   December 13th, 2009 at 5:35 pm

   Yeah there will be a slowdown, but I believe people have forgotten the biggest reason as to why it slows down the economy. The reason is this: with demand for housing slowing, the prices of houses fall, which in turn decrease average household wealth. The housing bubble that was created in the last couple of years led to huge increases in family wealth as household values skyrocketed. The drop in household prices will have an equal drop in family wealth. This will lower consumption as there is now less disposable income for each family.
   References :

4. anglophile1981 Says:
   December 13th, 2009 at 5:44 pm

   false; in theory, it depends whether a country really relies heavily on specific sector; according to ur question, the answer is that u should categories housing to its sector first before thinking that housing relies on the economy as a whole; there are other sectors that could offset the weak in housing such as the service sector; i hope this will help
   References :
   economist

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