Real estate and the national economy is characterized by a cause-and-effect relationship. A destabilized economy can hit the real estate market real bad. And a struggling real estate market can have negative impact on the overall economy. Everybody loses either way. In the middle of last year, the economic turmoil in the United States made the housing market fragile. The current financial market nightmare further weakens the already struggling real estate business.

This article focuses on how real estate affects the US economy in terms of GDP, employment, balance sheet effects, and residential fixed investment.

Impact on GDP

Real estate comprises a lot of significant aspects of economic activity, both directly and indirectly affecting the level and composition of the US real Gross Domestic Product (GDP). Real estate accounts for 10% of the total US economy’s output, making it a strong driver of the country’s economic growth. The structures share has remained fairly constant in the past 25 years.

Employment

Real estate attracts a large number of employees. Analysts predict that most of the labor force in America will eventually be employed in one of the following types of work: building contractor, real estate developer, real estate agent, real estate broker, and appraisers. Several niches will still be there for stock brokers to trade home builders’ stocks. The rest will work in the construction, buying and selling of residential real estate, and financing (and re-financing).

The employment demand in the real estate sector has even attracted unemployed professionals from other fields. The Wall Street Journal has reported that a large number of unemployed professionals from the information technology, finance, and management fields are now leaving their old jobs to become real estate agents. Many of them are realizing that their old work is not coming back or has gone offshore.

So if the real estate sector suffers a blow, so do jobs related to his market, thus potentially increasing unemployment rate in the country. Of course, we all know that a skyrocketing unemployment rate brings an impact of catastrophic scale on the national economy.

Balance sheet effects

Real estate is considered as a long-lived asset and thus has significant balance sheet effects. For instance, a constant increase in household net worth due to real house price hikes is likely to spur some upsurge in household expenses on products and services. In general, economists agree that there exists a wealth effect on household behavior.

Effects on residential fixed investment

A boost housing structure demand can result in an upswing in housing starts and therefore new construction. This is known as residential fixed investment in the national accounts. At present, it comprises about 5% of GDP. There are many direct and indirect impacts connected with real estate, which spill over into the national economy, such as demand for labor, lumber, and other goods and services needed in the construction or in remodeling activities.