History depicts that the USA has suffered from 11 recessions since World War II. The housing industry in the country was the reason behind two of the recessions. The leading economists suggest that the USA might be entering into another round of recession but the housing industry is not the problem this time.

Due to the increased rate of real estate properties and interests sought by the financial institutions, the real estate industry is witnessing a sluggish growth. Despite the glacial progress, when the country’s millennial population is increasing, the demand for new homes will still be there.

Reasons why Housing Affects the Economy

• Bigger sector than many major industries

The housing sector is merely an insignificant part of the economy but the value of the assets sums up to be a huge contributor to the ongoing cycle. It has a significant role in the recession as it is very sensitive to the interest rates fixed for borrowed money. The market is cyclical and has its ups and downs. It means that the industry has an immense effect on the economy of a country. The punch is heavier than its weight.

On the other hand, the second most significant market is consumer durables and expensive assets such as cars. Once you buy a home, your concentration in this sector will become fortified too. It means that the effect on the real estate sector will also reflect on the consumer durables too.

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• Prices not encouraging buyers

The existing sales volume in this sector is witnessing a downfall by 10% due to the skyrocketing prices and huge interest rates amended by the banks. The prospective buyers remain discouraged by both factors. On the other hand, the realtors’ group also blamed lack of proper asset supply to the public. The existing projects and properties are leaving the buyers underwhelmed.

Despite the growth in job opportunities and disposable income, the price rates of the real estate assets have risen even more. This is causing a disparity in the segment. The price has risen by 50% since 2012. It means that the EMIs are more expensive causing the families to face a financial crunch in the long run.

• Less supply

The rate of population growth is not matching the supply of assets in the market causing a gap. Despite the need, the realtors are not constructing new homes as they should meet the rising demands. It means that this sector will also create fewer opportunities. Some even cited that the local regulations are creating hindrance in constructing new homes. Moreover, the higher labor cost and creeping interest rates are to be blamed for this disparity.

Final Words

The summary of this discussion is that the real estate builders are not able to design and execute a project that fits the current demand. The people are unable to pay higher interest rates on the loans. This is why the supply has reduced considerably despite the existing need in the market. In a nutshell, a challenge is being posed by the housing sector to contemporary society.