As most people would suspect, a bad economy can have detrimental effects on the housing market in general. From the overall price of homes drastically dropping in value, to a vast decrease in the number of home buyers; a bad economy can be painfully difficult on the housing market. The main reason for this in effect is the result of a seeming chain reaction type of effect that occurs at the start of a recession or general economic downturn.
The beginnings of this chain reaction take place when the economy begins to falter. The victims at the forefront of this issue are small businesses. Many people do not realize just how important small businesses are to an economy. Small businesses hire a vast diversified work force that all contribute a large number of different skill sets, ensuring people of all different types of professions are hired. When this area of the economy begins failing, many people begin taking hits almost instantaneously. As the people who work for these smaller businesses begin to feel the pinch, and begin getting laid off, they lose a large source of their income.
As people begin getting laid off, they are less likely to be able to afford a home. In many cases, people experience downturns in their credit score, which also decreases the likelihood they will be able to get a loan for a home. As less people buy, housing prices drop, people foreclose, and there is a surplus of property available that nobody wants, which further plunges home values.