The economy affects home buying and home buying affects the economy. While the housing market isn’t the only factor that drives the economy, it is a significant piece of the puzzle. An economy rises and falls based on supply and demand. And supply and demand is driven by a number of factors.
When people have incomes, they are more likely to be capable of purchasing a house. As of June 2016, the unemployment rate in the United States was 4.9 percent. Compare that to a 9.6 percent unemployment rate in 2010 after the housing market crash of 2008 and 2009. When unemployment goes up, foreclosures increase.
In addition to employment, the housing market is affected by how well the market is doing in other areas. If business is booming—regardless of the industry—businesses are able to create jobs and give higher incomes to employees. This then creates a higher demand, not only for housing, but for new or higher-priced housing.
Mortgage interest rates also respond to economic growth or decline. When the economic forecast looks gloomy, investors tend to sell stocks and purchase bonds, which leads to lower yields and lower interest rates. Conversely, when the economic reports are looking up, investors do the opposite, which leads to inflation and higher interest rates.
The 2008 recession was triggered by falling home prices. Homes were selling for 4 percent less than they were in 2005. Because homes were selling for less, homeowners were suffering a loss in equity, and of course, in selling price if they did try to sell their home.
Between 2005 and 2007, around half of the mortgages in the United States were subprime mortgages. This a type of mortgage that is given to people with poor credit histories. Often, these individuals had credit ratings below 600. These people were more likely to default on their mortgages, which just created a bad situation all around.
When rental rates become less affordable, it tends to push people toward looking at homes for sale. Rental rates are also driven by demand. If there is a low demand for rental housing in an area, landlords will be eager to rent at lower rates and to offer more conveniences in order to attract tenants. The opposite is true when the rental demand is high.
This is, quite simply, the case when potential homeowners feel positive about spending money. If everyone is holding onto their money, the housing market will suffer. A consumer confidence survey shows that consumer confidence jumped from 29 in 2009 to 90.9 in 2015.
While the economy affects home buying, your ability to purchase a home still depends on your buying power and your location. Fortunately, Redding is one of the most affordable locations in California. Now is a good time to take a look at homes for sale in Redding.