The housing market in the U.S (United States) ranked among the promising economic sectors before the 2008 financial crisis. Although the housing market is yet to recover fully, indicators within the area present admirable trends within the field of housing (Richard 23). Despite lack of understanding among investors and key economic players, the housing market remains an important macroeconomic factor within a nation. A focus on the effect of the housing market on the GDP, employment and its impact on the interest rates, as well as the multiplier effect, proves essential.
The fall of the housing economy in the U.S relates to the continued provision of cheap and easy credit. Decreased interest rates increase the demand for loans and other credits especially mortgages that prove essential in the housing economy. Speculative buying resulting to over-development ensured rolling over of prices since 2006 but eventually spiraled downwards in 2008 arising from the world crisis that pushed the economy into recession (Hall 113). Even though 2009 characterized a rebound in corporate profits, construction of new houses slowed and home values performance continued irrespective of widespread unemployment. As media investigations reports, a sharp decline in mortgage lending and rising foreclosures characterized the sector.
Homebuyer tax credit provided in 2010 brought a brief rally, but buyers disappeared on the fee credit expiry thus leaving a gap in the housing market (Miller 73). The turning point of the housing sector refers much to year 2011 after mortgage modifications gave relief to homeowners. Consequently, job growth begun to rise enhancing more individuals take advantage of record-low mortgage prices at affordable rates. Private equity investors started to buy quantifiable housing units thus ensuring the creation of a mechanism essential for clearing distressed homes supply from the market. Increased home sales absorbed existing house groups thereby providing more room for homebuilders to develop new projects. March 2012 characterized home prices bottom of 35% that stands below their peak over a period of six years. Increased demand that currently exceed supply results from buyers returning to the market after waiting on the sidelines for years. Scarcity of fresh supply results from a decline in new houses construction as well as a reluctance from homeowners to sell existing homes at the current prevailing low prices. The continued construction shortage will end in the near future through resolving the bottlenecks as well as efficient functioning of the homebuilding industry.
The sharp rise in house starts in the past almost four years remains below the long-term average thus the housing recovery will continue. As opposed to new purchasing, construction relates directly to employment, as well as household formation. The current increase in development leads to increased job growth that outpaces the new-home construction (Payson 55). Therefore, there remains an expectation that development will increase to catch up with the employment growth. As employment levels increase, the household income increases thereby increasing the demand for housing. Increased demand for housing implies rise in new construction and maintenance of upward trend from existing home sales.
In understanding how housing impacts creates a lasting impact, a focus on its economic multiplier proves significant. House provides sustainable implications in the economy besides creating value through building and renovation of homes (Richard 77). Houses lead to additional household spending. It ensures that directly through providing consumption of goods related to housing. Indirect spending results from the creation of new jobs as well as increase in household wealth. The impact of housing effect on the economy refers mostly to four factors. Firstly, residential investment provides a direct benefit to the economy. Increased investment in housing will eventually lead to rising in the country's GDP as characterized by the case in U.S in 2012 (Miller 139). Second aspect refers to job creation resulting from housing. Housing serves as a significant employment source through providing source of income for different individuals in the economy. These individuals spend their money locally boosting the economy. Thirdly, housing-related consumption increases spending by the households. After purchasing new homes, individuals tend to spend more on appliances and furniture as well as other fittings. The expenditure on these equipments results from personal savings, therefore, existing spending continues. The last aspect related to wealth is the wealth effect. Increase in home prices increases household wealth. That in return encourages individuals to spend more on exchange ensuring a virtuous cycle of expenditure on house purchases.
As evidenced by the current housing shortage and increased demand that exceeds supply, the government needs to apply fiscal measures to bring the market to equilibrium. The government should reduce public spending in order to reduce the disposable income among the households (Miller 218). The other fiscal measure will relate to increasing interest rates. Increase in interest rates will discourage households from borrowing thereby reducing demand for housing. These two economic measures will ensure achievement of an equilibrium market and create a lasting impact on the whole economy and housing market.
In conclusion, the housing market in the U.S remains an important macroeconomic driver of the economy. It proves essential for the government to control the market through fiscal and monetary measure in order to ensure it runs efficiently. However, the current trend in this sector of the economy remains positive and promises a lasting impact.
Works Cited
Hall, Brian. Permanent Homelessness in America? Cambridge, Mass.: National Bureau of Economic Research, 2013. Print.
Miller, Debra A. The U.S. Economy. Farmington Hills, MI: Greenhaven/Gale Cengage Learning, 2010. Print.
Payson, Steven. Public Economics in the United States How the Federal Government Analyzes and Influences the Economy. Santa Barbara: ABC-CLIO, 2014. Print.
Richard,L. The Long Road to Recovery in the U.S. Housing Market. New York: Conference
Board, 2013. Print.
