Economic Impact On The Real Estate Market Essay

As far back as 1975, theoreticians pointed out to the fact that inflation brings swings in construction activity and negatively impacts the turnover for the houses that have already been built (Lessard, Modigliani 1975). There are several tings that can be analyzed in this case. First, inflation brings swings in construction activity because it increases the cost of materials, as well as potential associated costs, such as the cost of transportation.

Where there is darkness there is ultimately light and the various homeownership opportunities under the current economy reflect this notion. Real estate prices

Can we prevent any or all of these factors from having an impact on the property market?

There are several factors that can influence the housing industry economically. Supply and demand coupled with price elasticity can affect the housing industry. Negative and positive externalities, wage inequality, and the monetary and fiscal policies can all have substantial affect the industry of new homes. It must also be determined exactly how the economy affects the industry in both positive and negative ways.

America’s 2008 recession brought on “falling home prices and tight credit; state- and local-government cuts; higher oil prices that stood in the way of economic growth (“Back from the,” 2012). The price of homes dropped significantly pushing the equilibrium price down resulting in a shortage and an increased demand for houses at lower rates. When this occurs, suppliers are motivated to start producing fewer homes until a new market equilibrium price and quantity are achieved. After America’s recovery in 2009, suppliers slowly began to produce more homes and since that time, house prices have gradually increased (“Back from the,” 2012).

Macroeconomics is an excellent tool for the analysis of the housing industry as something like a capital good, as a home is considered to be, cannot easily be studied in a short-term platform. Real estate is a good that costs several times more than an average persons annual income, in the United States that number is typically 7 times as much, and in the United Kingdom that number is 14 times as much. Several factors of both supply and demand directly impact the housing market on a macroeconomic scale. (Business Economics, 1)

“By the end of 2007, real house prices had fallen by more than 15 percent from peak.House prices in many of the most over-valued markets, primarily along the two coasts, had fallen by more than 20 percent. Furthermore, the rate of price decline was

a growing flow of capital into real estate in an era of low interest rates and the widespread

Government can provide tax incentives to home-buyers and real-estate investors to stimulate the housing market. Offering tax incentives will attract buyers because it will make homes more affordable. Tax breaks on renting income will encourage more investors to buy renter homes. As more home buyers enter the market, real-estate values will continue to stabilize. Increased demand of real estate properties in the market will help prevent foreclosure.

In the world of real estate and homeowners’ property value, the one thing that has not changed for determining market price over the past 30 years is the location. There are other factors that homeowner’s should know when it comes time to selling or buying a home. Recent studies report the neighborhood and the home conditions are equally important for deciding to buy.

According to Loungani, (2010) “Robert Shiller is well known for predicting the U.S. stock market crash of 2000–01. In 2003, he warned that U.S. house prices too contained a “bubble”; that is, they had risen far beyond what was warranted by fundamental driving forces such as income growth, interest rates, demographic change, and building costs.” (pg. 16) This is a clear example of how macroeconomic volatility affects the housing industry as well as other industries that feed off of the housing industry such as construction.

The interest rate deduction offered by the government is an incentive that is usually placed so as to encourage the ownership of homes. It is especially for this reason that the demand for housing towards the new millennium was so

Real estate prices will not rebound any time soon. Housing is cyclical and we had a tremendous 8 year cycle which produced 150% appreciation between 1997 and 2005. This cycle was extended past its natural course through unprecedented low mortgage rates which bottomed at 4% for "variable" rates that were fixed for 3 or 5 years. Also contributing to the boom were loosened lending rules such as "interest only" loans which keep the payments artificially low and "stated income" loans which bypass income verification, making loans available to people who would normally not qualify. In my home area of Southern California, the prior down cycle also coincidentally lasted 8 years, starting in 1989, bottoming in 1995, and rebounding in 1997, causing 20% haircuts from top to bottom. These cycles always go through the same phases: greed, denial, fear, pain and resolution. First speculators disappear, prices become stagnant, and houses stay on the market. "For sale" signs creep up as demand vanishes and sellers sit on their houses longer, creating a greater supply and putting more downward pricing pressure. Sellers reduce their asking prices, builders offer special incentives. The inventory builds up, desperate sellers discount further, some default on their payments, and the repossession phase starts. Banks, who are not in the business of owning homes, dump them at or below what is owned on the mortgage. They tighten lending standards as they no longer want marginal buyers, reducing

The current real estate crisis that America finds itself in is one of the greatest challenges America has ever faced. America’s troubles are further compounded by increasing unemployment of American citizens and environmental problems like global warming. Solving any one of these problems would be a Herculean task, yet they must each be addressed in order to protect American families from disaster. However, it is possible to find a solution to the problems of the real estate crisis that can also be used to improve the problems of the unemployment and environmental destruction. The first part of the solution involves the United States government purchasing the homes that have been foreclosed and using them to offer temporary housing to

A difficult characteristic to understand about the housing market is how a price is given for a particular house. That price will be designated to that particular house alone. All houses have various pricing, so I can’t always assume that one will cost more or less than any other. The pricing for houses vary based on their characteristics. Each characteristic must be analyzed to determine its contribution or detraction toward the price. I have taken some of these characteristics and modeled the relationship between them and the price of real estate for a specific area.