Real estate plays an effective part in the economy majorly because it makes up to a large portion of individual and business wealth across all the economic sectors. Wealth increases when the real estate prices rise, so businesses, as well as individuals, are bound to borrow and spend more. Mian Ayaz Anwar CEO of Zaitoon terms real estate as pervasive. This is because, in the economic boom, it has been noticed that real estate was involved to the utmost.
It makes up a large percentage of household wealth, it is the most valuable asset for farmers, it is a major factor in retail and construction, and it plays a role in many other industries. When prices fall, the after-effects siege the economy. And so is when prices rise. Customers feel it more convenient when wealth is increasing which pushes them to make riskier steps in the economic world. They spend more and save lesser, knowing that they shall always fall back home when running into trouble. This surge in spending can have a strong positive effect on the economy of the nation.
Of course, a slowdown in consumer spending is expected when prices begin to decline. The other side of spending is debt. So because an increase in home values affects spending behaviour, we might also expect it to affect borrowing behaviour. Banks too tend to lend more because they are aware of the fact that rising home prices shall always help them recoup their losses in case of a default.