Recently, I was invited to speak to a high school business class on the topic of real estate, home values, the $8,000 tax credit and the economic stimulus program in general.
To start my presentation, I asked for questions from the students. What questions do they have about real estate, etc.? What do they want answers to?
One young man spoke up: “What’s the big deal about home prices? I keep seeing it on the news that home prices went up or down, but so what? It doesn’t mean anything to me because I don’t own a home.”
“Let me come back to that question later,” I replied, and collected a few more questions from the audience before presenting some facts about buying a home, the tax credit and so on. Eventually, I came back to the question the young man had asked at the beginning.
“So, why are home values important to you?” I asked, “First, let me ask if you have a job; do you work part time after work?” “Yes,” he replied, “at the restaurant down the street, washing dishes. Been there since I was fifteen.”
“So you’ve been there a few years now,” I said, “and have you been working as many hours lately as you were, say, three years ago?”
“Not really,” he said, “about half as many as when I started. I used to work the breakfast shift from 5:30 till 7:00 but I don’t any more.”
“I see,” I went on, “and why don’t you work breakfast any more?”
“Well, because the guys who used to come in before work aren’t coming in.”
“And what did these customers do for a living?”
“Construction guys, mostly – builders, carpenters, drywallers, painters.”
“Uh-huh,” I continued, “and why aren’t they coming in now?”
“They haven’t had any work.”
“Ah-hah!” I replied. “So, let me get this straight. Building trades workers are out of work because nobody is buying new homes. Why? Because the house they need to sell in order to buy a new home isn’t selling (or won’t sell for a price high enough to have any equity left to put down on their next home), right? So those construction guys who are out of work don’t have the money to come into your restaurant for breakfast so YOU GET LAID OFF. Are you starting to see why home prices are important not just to you but to everyone in our economy?”
“If homeowners lose the equity they have built in their homes, they can’t “buy up” or downsize. They must stay put and the real estate market stagnates. Homeowners don’t go out to the hardware store to fix their home up to get it ready to sell – paint, carpet, countertops, new cupboards, etc. – nor do new home purchasers go out to the appliance stores to buy new refrigerators and furniture for their new home. People who work for those retailers get laid off, too, so they can’t buy houses, or cars, or appliances, or go to dinner at your restaurant."
When real estate grinds to a halt, so does a multi-billion dollar segment of our nation’s economy. It impacts everything from retail sales, to jobs, to new home starts, construction projects (like finishing a basement or adding on a room). It causes companies engaged in those businesses to cut back on personnel and people without jobs don’t have money to spend on necessities, let alone dinner out."
“Now do you see why home prices are important to YOU?” I asked.
