Real estate’s long effects
Date posted: October 13, 2010
The decline in real estate prices nationwide has obviously affected homeowners and financial institutions alike, but almost daily there’s news of other impacts of these price declines. N.C. Cooperative Extension economist Mike Walden outlines the latest.
“This is really showing us how big and how massive the impacts have been of the decline in the real estate markets over the last couple of years. And … we already know the impact on some homeowners who have mortgages that are more than the value of their homes. We’ve also seen evidence that this is effecting small businesses because a lot of small businesses — small business people — use the value of their home to go out to get loans.
“And now we have a study that shows that this is actually affecting also big corporations. And the issue here is that big corporations, many of them have been big holders — big investors in real estate — so they have also been affected by the decline in real estate values.
“But now we have a documentation of the impact of this, and what some economists who have looked at this in detail have found is that for every dollar decline in a corporation’s real estate values, that corporation invests less by 6 percent. That is, their investments go down by 6 cents for every dollar.
“Translated, that means the corporation now is simply less willing to expand to hire new workers, et cetera. So obviously this slows down our overall rate of economic growth. And it is just another piece of evidence showing how this real estate bust that we have been through has had such long impacts.”
Category: Economic Perspective