The Effect of Unemployment on the Real Estate Market

It is pretty obvious that our current unemployment crisis directly influences many parts of our economy, including the real estate market. It is fairly simple to figure out. Individuals without an income obviously can’t afford to invest funds in the housing market. Sadly, many home owners have become unemployed after already securing a home mortgage and this simply puts another home back on the market when that person can’t fulfill their financial obligations. Ultimately, this leaves more homes in the unoccupied category and lends itself to a lowering of housing prices.

A less direct way in which unemployment affects the real estate market is the negative impact the unemployed individuals have on their local economy. Someone without an income obviously doesn’t have the disposable income to spend at local shops and entertainment venues. This lessens the money and income that these businesses take in, which results in further layoffs or business closures. It just keeps going down the line like a trickle down effect, and in the end, it ends up meaning people do not have the funds to invest in real estate.

However, it doesn’t end there. Statistics show that areas with a high unemployment rate often have the highest crime rates. In turn, a region with a high crime rate is not very attractive to real estate buyers. The local housing market then adjusts to this, and the local real estate values drop even lower. Unfortunately, for many areas this can be a never ending spiral downward.

The people who are employed take this into account and usually are not confident enough to make a housing purchase in the area. In a bad economy, many buyers will choose to wait it out and hope the economy levels off before making a purchase. Home owners who do have disposable income will usually choose to invest funds in their own home in the way of upgrades or repairs. However, with a general shortage of funds, home owners are forced to let their homes fall into disrepair, which further decreases the property value in the already struggling area.

Because unemployment rates are directly linked to the real estate market, economists take this into account when analyzing the housing prospects for an area. This is also something buyers should take into account when deciding whether or not to purchase a house.

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