The American Dream
When I think of the importance of real estate, the very first thing that comes to mind is the idea of "The American Dream". Over time we've all heard stories about our ancestors coming to this country for one reason or another, we've read about The American Dream in books such as The Great Gatsby, and we've seen movies that have made us proud to be Americans. I think one of the fundamentals of The American Dream is the idea of home ownership; which is why I included this picture below:
Photo Credit: www.TheFourthEstate.net
To me, this picture symbolizes The American Dream of home ownership or in other words, residential real estate. One of the most important things a man can have is something that is his own. Sure, there are numerous uses of real estate for other gains, but in my eyes, the most important aspect of real estate is that of home ownership and being able to have something that is distinctly yours.
The 2008 Housing Crisis
Understanding how important real estate is to the global economy became rather apparent during the financial crisis of 2008.
I've included a link here to help to show exactly what happened so that we can all be on the same page:
This article goes into detail of what exactly happened. To make an incredibly long story short, here goes. You had these banks lending money out for people to purchase new homes. And these lenders were making money on every single transaction. Well, they got greedy. And started making loans to people who had no chance of being able to afford them or ever pay them back. But they didn't care because these loans were seen as being self-collateralized (the home's value wouldn't decline so even if a foreclosure happened, no one would be out any money). Well that's all well and good, until the housing bubble bursts and home values start to fall. Now these loans don't have the previous collateral value that they did before. But the banks didn't just take the loss here, they had sold their mortgages to investment firms who then sold them to investors in the form of mortgage-backed securities (MBS). The MBS were initially viewed with AAA ratings, again because of the self-collateralized aspect of real estate. But when the homes lost value and people defaulted on their mortgages, the holders of the MBS lost their money. And those investors were not just people like you and me, they were business owners, businesses, even cities and towns. So now that I've explained this from a very, very broad perspective, it's quite clear just how important real estate is to our economy.
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