Real Estate as an Economic Indicator

Published by julia | Filed under Buyer / Seller Tips, Miscellaneous, Real Estate

Real estate is one of the many indicators that the world uses as an economic indicator.  Countries where most of the population lives in homes with electricity and indoor plumbing are often the first world countries and are the elite countries to live in.  Within these countries, the rise and fall of the number of homes being bought and sold is an indicator of the country’s current economic status and progress.  Other indicators regarding real estate that are indicators of a country’s economic status and process include the number of foreclosures and late mortgage payments.

In normal economic status, the number of homes being built and sold equal the number of people buying these homes.  This is due to the population having productive and well paying jobs, allowing them to take on a large loan and pay it off efficiently.  In an economic growth, the number of people looking for homes often is higher than the number of homes being built or that are offered.  This is because the number of jobs is increasing and the rate that the employees are being paid is higher.   The opposite is found in an economic decline.  The number of homes being sold is higher than the number of people looking to buy homes.  This is due to the number of people who may have lost their jobs or can no longer afford to pay for their mortgages.

Just as homes sales are vital to viewing the economic health of a nation, factors dealing with the mortgages of these homes are also vital.  One such factor is the number of mortgages that have been defaulted upon.  Such homes that have a defaulted mortgage are called foreclosures, and if this number is on the rise, it can signal an economic crisis.  It means that people are no longer able to make the necessary payments to keep their homes.  They either turn to apartments or they end up on the streets, but either way often requires assistance from their community to survive which can mean more stress on a fragile community.

An indicator that often precedes the foreclosure indicator is the late payment indicators.  Foreclosure is the final step to a defaulted mortgage, but a late payment is often the first step.  If this step is completed, it can often be the early warning sign of a failing economy.  With late payments, interest rates increase, as do fees for late payments.  This helps to dig the hole that many home owners simply cannot dig out of and often leads to foreclosure.

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