why does the real estate market crash with the economy, if landlords and mortgage companies dont usually kick out people as soon as they are not able to pay their rent/mortgage because of the market crash?
In: Economics
(I don’t think that it can be explained to a 5yo) It’s kind of a domino effect.
The majority of houses are financed instead of entirely bought. (Sorry if it doesn’t make any sense, English is not my primary language).
Because of that, when people looses their job they can’t afford pay mortage that they took to buy the house.
On the other side of the problem stands the bank. It doesn’t have (and own) all the money that it lands. The truth is that when I deposit, let’s say, 100 bucks in a certain bank the bank uses it to loan to someone else (I know, it uses to invest in options and stuff but I’m trying to make a point) and to make things worse it doesn’t loan the money to a single person but to a bunch of people. That is possible due to “credit”.
When you are out of money you can’t pay the mortgage for your house and, in the worst case scenario, can’t even get back your money as the bank loaned that amount to people whom can’t pay the bank because they lost their job as well.
People do invest in real state and, when no one has money to buy, it doesn’t matter if you house worths 2 millions USD as no one have that amount to buy or don’t want to take a loan from the bank because, when no one is paying the loans the banks elevate their taxes trying to shield themselves from people taking mortgages and not paying them back.
No one wants to sell their property for less than it’s worth. If your home is worth 2mi USD, you won’t take 500k to sell it. But the price is going to drop, even thought you don’t want it to.
Right now you have a bunch of people selling their property to get money to pay their bills but you don’t have people buying as no one have any money and people start to lower the price for their properties as they gotta live somehow.
So, low prices, no buyers, constructors stop building homes because it’s not worth it as no one is buying and the prices are low and then companies start to fire people as they’re not making any money and the cycle repeats itself.
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