A Brief Economic Overview of the Housing Industry
The housing industry has definitely been on the downswing since the summer of 2006. Home sales as well as house prices are down. Inventories of unoccupied homes have increased and there has been a recent decline in the employment levels of the housing industry. Many economists are of the opinion that we have not seen the bottom of the decline in the Housing Market', which is one of the most important factors of the American economy. Recent statistics indicate that there is an increase in mortgage applications; however, at the same time there is a decrease in permits and new-home startups that could affect the economy for several years to come. In addition, another disturbing trend is the increase in home building cancellations during the last 3 4 months.
Elasticity of Supply and Demand
Most Americans consider housing a necessity. "Necessities tend to have inelastic demands, whereas luxuries have elastic demands" (Mankiw, 2004, p. 90). Due to the slight change in price if the quantity demanded increases or decreases, the price elasticity of demand in the home building industry is inelastic. Likewise, the price elasticity of supply in the home building industry is also inelastic due to the fact that changes in price only slightly change the quantity supplies.
Substitutes exist in the home building industry. Like automobiles, there are several homes to choose from ranging significantly in price. In an attempt to protect oneself from the elements as well as protect their personal belongings, people generally invest a significant portion of their earnings by renting or owning a home.
"Market prices depend on supply and demand, particularly the elasticity of supply" (Frantantoni, 2005). When prices for homes increase, if builders would increase the number of homes built hence available for sale prices would eventually taper off and possibly fall as the supply surpasses the demand.
Externalities
There are several positive and negative externalities related to the home building industry. Positive externalities include: aesthetic amenities, barrier in mobility, tighter communities, increased political and educational involvement as well as benefits for children and their families. Negative externalities include; overcrowding, view destruction, envy, and jealousy.
According to Edward L. Glaeser and Jesse M. Shapiro (2002) "The economics literature points to three reasons why homeownership might create externalities." First, homeowners have an invested interest in the property they own and the surrounding area; thus, homeowners have more interest in the attractiveness of the community.
... the future. The housing industry in the United States is currently shrinking due to the recession and a drop in the employment rate in the country.
The new millennium brought with it a housing boom which had reached an unsustainable level (Pollock, 2011). Housing prices grew rapidly, and Baker (2010) noted a rise in house prices of over 70% from 1995 to 2006. For example, he noted average home prices in Los Angeles rose more than $400,000 over the period of 1995 to 2006 and approximately $519,000 in San Francisco. Prices around the country increased substantially as well (Baker, 2010). To encourage homeownership, banks promoted creative financing options (i.e. adjustable rate, interest only,...
Economic troubles can be prevented through access to affordable and adequate housing that is within the means of an individual’s income. With advances in production and design, the American Dream can become a feasible reality for all Americans.
Demographic factors – if there is an increase in the birth rate, average life expectancy, immigration, and number of divorces there will be an increase in the demand for house purchases as there is a higher proportion of people in the population that
...ere is still financial problems they face. The article also states that “U.S. home values continue to rise as buyers compete for a limited supply of properties for sale (Jafari, 1).” In other words the competition is still there. Many are wanting houses, and there is either too many buyers or not that many houses for sale. So not much has really changed.
The promotion of homeownership is one strategy that policymakers use to improve the well-being of disadvantaged families. A home is a valuable asset, and for multiple reasons, homeownership is an important area of study Michal et al, (2011).
Integrate+Source #1 Quotation and citation: As said by Sorgel, “Rising home prices in the U.S….list their properties at higher values...Amid rising uncertainty and still modest income gains, not to mention rising rates, consumers face potentially more difficult times affording and financing a large-ticket purchase such as a new home (Soergel).
“The housing market will get worse before it gets better” –James Wilson. The collapse of the United States housing market in in 2008 was one of the most devastating moments for the world economy. The United Sates being arguably the most important and powerful nation in the world really brought everyone down with this event. Canada was very lucky, thanks to good planning and proper preventatives to avoid what happened to the United States. There were many precursor events that occurred that showed a distinct path that led to the collapse of the housing market. People were buying house way out of their range because of low interest rates, the banks seemingly easily giving out massive loans and banks betting against the housing market. There were
First off the United States economy, in general, needs to improve. Economy is like a domino effect, and now it is hitting the housing industry. Our unemployment rate is up to about 10%. Banks are not prospering like in the past. Tons of Americans are in debt; by the end of 2008 Americans reached a $972.73 billion debt due to credit cards.
2) The maintenance of an attractive house by an individual may be beneficial to her neighbors in the form of increased market values for their properties.
Affordable housing in the United States describes sheltering units with well-adjusted housing costs for those living on an average, median income. The phrase usually implies to applied rental or purchaser housing within the financial means of lower-income ranges specific to the demographics of any given area. However, affordable housing does not include those living in social housing owned by government and non-profit organizations. More specifically, the targeted range for housing affordability sets below 30 percent of a household's annual income, including all applicable taxes, utility costs and home owners insurance rates. If the mean income per household breaches the 30 percent mark, then the agreed status becomes labeled as "unaffordable" by most recognizable financial institutions.
The rising house prices are making many young potential home buyers nervous, which in some ways is impacting the social fabric by prolonging marriage and raise family. This also impacts the work ethic balance by promoting capital gains, rental income and other avenues over hard earned wages.
Living near a major city can be a positive aspect of being a homeowner or someone who uses real estate as an investment. Increasing population contributes to land and space diminishing, resulting in high demand for what is available. Industry and markets are in the city, attracting buyers who want to have the convenience of living near commercial properties. The difference in the pay scale between jobs in the city and jobs in the suburbs could contribute to the home prices being less expensive in the suburbs. Many people do not want to live in the middle of the hustle and bustle of the city, causing an increasing number of communities to be built further away from the city.
Buying and owning your home is part of the American dream. Although the dream itself has since changed, the home still remains the main focal point. Today owning a home doesn’t necessarily mean a house. People now buy duplexes, cooperative apartments, and condominiums. For some families it could take up to a couple of generations before it’s able to have the capabilities of buying a home. To many people it means a certain achievement that only comes after years of hard work. It is a life altering decision and one of the most important someone can make in their lifetime. The reasons behind the actual purchase could vary. Before anything is done, people must understand that it’s an extraneous process and it is a long term project.
The main advantage to owning a home is the security blanket feeling one gets from being a home owner, having a stable base from which to raise a family, having a “home sweet home”. For generations, it has been a tradition to buy a home as one’s family begins to grow, a sign of progress and stability. On a financial basis, a home can be considered a storage of wealth, using a mortgage as a forced savings plan, increasing the equity as mortgage payments are made. Tax deductions are also an incentive to purchase a home especially in the earlier years of paying off a mortgage when much of the interest is being paid, and subsequently deducted from income tax. Home ownership can also allow access to home equity loans, that afford lower interest rates than some other debts and are also tax deductible (Trulia. 2014, February 28). Most