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How is the housing market an indicator of how the economy is doing?

Somebody once told me that the housing market is an indicator of how the economy is doing. i.e. if the housing market is doing well, so is the economy; and vice versa. I can see this from studying history (the decline of the Florida housing market shortly before the Wall Street Crash of 1929) and looking at recent times (the currently declining housing market in the UK, USA and various countries across the world) but what I would like to know is how and why does this work? How are the economy and housing market related and how would that indicate a current or indeed incoming economic downturn? Thank you in advance for your information.

Public Comments

1. It's a confidence thing. If the banks lose faith in the economy they just stop giving out mortgages with low deposits, resulting in less people being able to afford housing. With less buyers prices for houses decreases. When the economy is going strong, the bank hands out (arguably a bad thing) very cheap mortgages, and housing prices increase as demand for housing soars.
2. If people can afford to borrow enough to buy a big expensive thing like a house then employers and businesses are doing well enough to pay them high wages. Banks feels secure enough to lend huge amounts over long periods, and feel secure enough to borrow it off each other to lend to customers. The movement and turnover of all this money keeps interest rates stable and the economy grows steadily. Theres more to it, but theres the basics.
3. It is quite a complex question to answer. However, I would to quote the formal but not relating to the facts over developed housing problems of economic bubbles are just of sort of promoting and protecting of basic human sins of greed, selfishness, fear of losing or reducing the values individual assets and possession. The bubbling economy is more harm than good for most countries in this world. http://search.yahoo.com/search?p=Quoted%20the%20examples%20of%20how%20the%20current%20world%20market%20systems%20of%20housing%20and%20stock%20markets%20harmed%20the%20many%20poor%20and%20killed%20the%20many%20indirectly%20in%20the%20third%20world%20and%20developing%20countries. The key works and true answers may involved sort of against the misled of the current economic systems, particularly about the housing markets and stock markets. We can recall the the sub prime loan crisis is prefixed by those Wall St. Financial elites (licensed international cheaters) to collapse the invested total 17 trillion US dollars from all investors worldwide and made billions of bonus and compensations. http://search.yahoo.com/search?p=The%2060%20Minutes%20showed%20the%20conspiracy%20of%20the%20sub%20prime%20loan%20collapse%20and%20stripped%20out%20of%20total%2017%20trillion%20US%20dollars%20investnments http://search.yahoo.com/search?p=The%2060%20Minutes%20TV%20about%20the%20the%20even%20worsen%20set%20up%20of%20Alta%20A%20and%20option%20Arms%20than%20the%20sub%20prime%20loan%20scheme To save our world, it is better to bust the economic bubbles of stock markets and housing directly and indirectly but wisely.