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How Does Real Estate Affect the U.S. Economy?

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real estate and the economy

Hotels support the travel and leisure industry. (Photo: Don Kravitz / Getty Images)

Question: How Does Real Estate Affect the U.S. Economy?
Answer: Real estate plays an integral role in the U.S. economy. Residential real estate provides housing for families, and is often the greatest source of wealth and savings for many of them. Commercial real estate, which includes apartment buildings, create spaces for jobs in retail, offices and manufacturing. real estate income provides a source of revenue for millions.

In 2011, real estate construction contributed less than 5% to the nation's economic output a measured by Gross Domestic Product (GDP). This is down dramatically from its peak of $1.195 trillion in 2006. At that time, it was a hefty 8.9% component of GDP. Real estate construction is labor intensive. Therefore, this decline in housing construction is a big contribution to the recession's high unemployment rate.

is only a portion of the economic activity associated with real estate. A decline in real estate sales eventually leads to a decline in real estate prices. This then reduces the value of everyone’s homes, whether they are actively selling it or not. This then reduces the amount of home equity loans the homeowner can get. This, then, reduces consumer spending.

Over 70% of the U.S. economy is based on personal consumption. A reduction in consumer spending will contribute to a downward spiral in the economy. This results in further unemployment, further reduction in income, and further reduction in consumer spending. If the Federal Reserve doesn't intervene (by reducing interest rates, then the country could fall into a recession. The only good news about lower home prices is that it lessens the chances of inflation.

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