Simple Steps Toward Economic Recovery

While it is true that we have a complicated economic system, there are still simple rules that we should follow in order to move us out of this current real estate slump that we are in. There are not many markets that affect the economy as a whole in the way that real estate does. The good news is that fixing the real estate market can have a domino effect that helps stimulate other parts of the economy. All it requires is the first domino to be pushed. Unfortunately, we seem to be having a hard time doing that. We should be focusing on increasing consumer demand, rather than trying to sustain people who are really in no position to benefit from the assistance for the long run.

One difference between real estate and other markets is that stimulating demand is done a little differently. Yes, reducing prices and home improvements always help, but another way is to move more people into the position where they can actually get approved for a loan. Not many people can honestly say that they do not want to own a home; it is the American dream. So, unlike clothes or furniture, we do not need to make people want to buy, but rather make them able to buy. This is how we stimulate demand in real estate.

Once we successfully stimulate demand (by moving more people into a position to purchase), we will begin seeing home prices increase. The more demand for a product there is, the more the price of that product will increase, with all other things being equal. With so many Americans underwater, there is a stagnate portion of our market that is simply waiting for their home prices to go back up. Once home prices go up, and people begin moving into the positive equity zone, we will see more refinances, cash out, second loans, etc., all things that encourage spending. This spending will increase the number of jobs that are available, which will increase the demand for real estate, starting the process over again.

According to the Bureau of Labor Statistics, the unemployment rate in America is 9.1%. While this is above average, it is important to recognize that over ninety percent of American's are still working. There is obviously plenty of room for economic growth, and increasing home values will lead to more investments and spending, which leads to more jobs. Our government is spending at record levels, with much of the money allocated to real estate recovery going to the wrong places. If we stimulate demand for (ability to purchase) real estate, we will see the economy begin recovering, starting with the housing crisis correcting.