The Effects Of Housing Prices On Household 's Consumption

The housing crisis of 2008 can trace its origins back to the stock market trends of the mid- to late 90 's. During a period of extended growth in the stock market, increased individual wealth among investors led to generalized increases in spending, including in the housing market. With more disposable income in the pockets of consumers, the demand for housing increased in the late 90 's. Due to the fact that homes are large projects and their construction takes a large amount of time, the supply of homes in the market is inelastic on the short term. Because of the fixed supply of homes, as per the law of supply, which

The relationship between inflation rates and the housing market is difficult to grasp, but one can introduce this paper with the general assumption that, given all the different elements that are part of the construction process, as well as many of the correlated services such as insurance, there is some positive correlation between inflation and the housing market, notably in that inflation can bring the prices of the houses upwards.

As we now know, the U.S. economy, the middle class, and its job growth was damaged by the overwhelming collapse of Wall Street, which was triggered by the downfall of the housing market and sub-prime loan defaults. One of the main things that need to be addressed in our economy today is the housing market and making sure that our banks and credit unions are not allowing people who do not have the necessary income to pay their mortgage disbursements. In an article entitled Thinking outside the Housing Bubble, the author John Vogel remarks how the economy is generally supported by the housing market. Vogel states:

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)

In the article “How to fix wealth inequality”, Hecht (2014) raises houseownership as a factor to minimise wealth inequality, and brings up an issue over how the poor are more affected than the rich, while listing several factors that deter poor people from getting homeownership. According to Hecht (2014), despite declining house prices and interest rates, homeownership is out of reach for low income families because they are vulnerable financially in post-recessions. Moreover, there is ongoing progress on reducing education fees so that young people could graduate without being saddled with debts which deter them from having houseownership in the future. Throughout this article, he highlighted the importance of houseownership as being an asset which can be passed from one generation to the next thus reducing the economic disparity.

Whenever a second source of income is presented into the equation, it allows for an increased in savings. Moreover, their combined income overcompensates for the accrued expenses, which then they can establish how much of their income can be carried over to their savings account. Additionally, a combined income allows for an opportunity to purchase a home and one important reason behind it “is the addition of wife’s earnings to family income” (Hanson and Ooms, 624), which generated an increase number of home ownership, especially in young families below the age of 35 during the 1980s. Unfortunately, for lower class single-parent households owning a home was much more difficult and a great deal is because they don’t generate enough income to be able to save for a future

Changes in market conditions make buying a house difficult. The percentage and reasons why young adults are living with parents show

A core tenet of the American dream is home ownership. At the turn of the century, young adults were buying homes. However, since the bursting of the housing bubble and the resulting mortgage banking crash, the rate of younger Americans purchasing a home has fallen sharply. Many millenials – those born between 1981 and 1997 – want to own a home, but doing so is financially beyond their reach. Half of recent college graduates have no full-time job (Kadlec, 2014), and those that do may be described as underemployed. The increasing diversity of that demographic is positively correlated with the downward trend in personal economic health (Drew, 2015; Myers & Simmons, 2017). The worsening financial strain leads young adults to postpone marriage and family, which also reduces the need for them to own a home. In fairness, the problem faced by millenials is only a microcosm of that faced by the populace as a whole. Home ownership for the population as a whole is the lowest it has been in over 20 years (Fry & Brown, 2016).

Debt accumulation for middle-class and lower-class households rose significantly in the decades prior to the crisis. (Within the financial sector, debt rose from “22 percent of GDP in 1981 to 117 percent in 2008). As households spent more and saved less, they began relying heavily on loans and speculation to sustain their spending. The housing market in the late 1990s and early 2000s became the primary focus of spending--with banks giving out loans for houses far beyond the financial means of the one’s acquiring them. As J. D. Wisman asserted in Wage Stagnation, Rising Inequality, and the Financial Crisis, “the housing market was greatly stimulated by very low interest rates

Millennials have to contend with staying at their parent's homes, while struggling to grasp onto shrinking job opportunities (Evans 1). The constant back and forth of either being babysat or babysitting creates a sense of inability for the millennial generation to sustain their workplace while staying with their parents at home. An article by Patten and Fry asserts that the housing market trends in the United States of America further affirm that there is an increase in the number of people renting houses as opposed to the number of people owning them. The explanation that is offered to justify such trends, of increase in people renting houses, is the growth in the cost of living (Leader Publications 1). The increase in the cost of living not only lowers the amount of money being spent, but also the spending potential of many people, therefore, disabling millennials from creating major financial decisions such as home ownership. As a result, the remaining option would be to live with their parents or to seek for a rental house if a millennial wants to move out (Shwetz 1). The increase in the inflation rates further hinders both the boomers and the millennials from having access to the housing market. An increase in inflation leads to an increase in the cost of living. Additionally, an increase in inflation rates also

Housing demand includes household growth, real incomes, real wealth, tax concessions to both owner-occupied and rental housing, concessions to first homebuyers, returns on alternative investments, cost and availability of finance for housing and the institutional structure affecting housing finance provision (Yates, 2008). The growth in the number of households and in real income results in the increased pressure on housing demand.

The first perspective that we will look at is the timing of the housing boom. During this time residential investment moved above the average range and rose substantially towards the end of the year (Dokko, J., Boyle, B., Kiley, M. T., Kim, J., Sherlund, S., Sim, J., & Van den Heuvel, S, 2009). During

In the next year, GDP is intended to grow minimally. With the large abundance of new housing for sale, investment and consumption will increase. As job growth is strengthening, demand for better residency is growing, as well. The high demand for living complexes, nevertheless, is increasing prices and forcing residents to devote a larger portion of their income towards housing. Rent is accounted for as consumption by households, thus it is still positively influencing GDP. However, the inflated rent prices have caused a lack in consumption of other goods, as stated in the article No Let-up Seen in Rent Hikes This Year. Consumption by households accounts for about 68-70% of GDP and without the usual focus on buying products, such as groceries,

A quick survey of the hedonic literature finds that the effects of certain public goods on housing prices often vary in their significance, magnitude and direction. In fact, cite{sirmans2005composition} review over