Flipping the Housing Market: the Economic Effect on the Real Estate Business

When a person watches TV today, he or she is overwhelmed by the number of programs that are focused on buying homes, fixing them up, and reselling them. The trend of flipping houses for a profit, however, may slowly be coming to an end. As The Economist explains, the pace of existing home sales in America fell by 4.1% in July, the lowest it has been in three years. As the economy continues to slow, housing prices too begin to slow. The make-it-rich scheme of investing in real estate may be a thing of the past.

House prices are a good measure of the US economy. If house prices are extremely high, it shows how the economy is exploding, and if house prices are low, it may be a sign of a recession. House prices have a large effect on consumer spending. House prices were valued relatively high to reflect the housing market explosion; people began increasing spending. If people think their houses are worth less, though, they will decrease spending. A decrease in spending has negative results on the economy—jobs are lost and interest rates rise. Home improvement stores that felt a positive affect from all the do-it-yourselfers who wanted to fix up the homes on there own, may see a decrease in sales consequently affecting the number of jobs the stores have available. Construction companies may also see a decrease in the number of jobs because there is not the same amount of work to be done doing repairs or building new homes. Increasing interest rates is an attempt to curve onset inflation.

However, to combat the decrease in spending, the Federal Reserve may decide to decrease interest rates to prevent a recession. Given the current state of the economy decreasing interest rates is not the best alternative. Instead, the United States should turn to increasing personal savings. The Office of Management and Budget Director Rob Portman thinks that polls show a "disconnect" between how people feel about the economy and how they feel about their own personal situation. People need to be aware of how their individual actions affect the economy so they in return see how the economy affects them personally. Individual should not be discouraged, other parts of the world, like Russia, are seeing a soaring boom in real estate. Economies go through cycles; the good times cannot last forever. Currently, the U.S. is experiencing a downward trend, but the economy will begin to balance out. Investing in real estate will be replaced with investing in the next big thing.