An increase in the sale of new houses is often a sign that an economic expansion is coming. Why would this be the case?    

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noahvox2 eNotes educator| Certified Educator

Buying a new house is one of the most expensive purchases that most people will ever make in their lives. Such purchases are not entered into lightly because most people will have to borrow money that they will spend 30 years trying to pay off.

People who feel confident enough to commit three decades of their lives to paying off a house must feel pretty confident about their finances. When a lot of people feel confident enough to buy houses, this is a good indicator of strength in an economy.

Additionally, the construction of new houses puts people to work. Construction jobs generally pay better than minimum wage, so the more new houses that are being built, the more workers there will be who have a decent amount of cash in their pockets to buy goods and services.

Finally, the more houses that are being constructed, the more business places like Lowes and Home Depot will see from both home builders and homebuyers, who will shop at these stores to buy various products they need for their homes.

In sum, the building and purchase of new homes indicates confidence in the economy and also will trickle down and out into other parts of the economy.