When unemployment and interest rates are low and economic growth is high, housing prices tend to rise. Likewise, housing prices generally drop along with declines in economic growth and increases in unemployment and interest rates. Consumer confidence also plays a role in housing prices.
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When more people are employed, more people are also able to afford homes, and housing prices, in turn, increase. On the flip side, as unemployment increases and consumers feel uncertain about their future, housing prices will drop because of a decrease in demand.
When the economy as a whole is more robust, people make more money and have greater confidence in their financial futures, so they can and do spend more on a house purchase. This increases demand and housing prices. The opposite scenario reduces demand and housing prices.
When the costs of building supplies and materials start to increase, builders pass that additional cost on to potential buyers, thereby increasing housing prices.
Finally,consumer confidence plays into housing prices. When consumers are confident in their economic circumstances and the stability of the housing market, they're more likely to make a purchase. When they worry that future prices will fall, they're likely to wait.
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