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 housing market is very unique as unlike other goods and services, houses have permanence, it is a fixed location good causing the rules of supply and demand to be taken to new extremes. In the case of the Toronto housing market we can view in almost real time the role supply and demand play on he ever increasing house prices, additionally the fundamental economic issue of scarcity is made extremely apparent by the limited size of the city of Toronto.
In the Late nineteenth century the population was growing at a rapid pace. The country had people flooding the biggest cities in the country such as New York City and Chicago. These populations were gaining more and more people every single year and the country has to do something to make places for these people to live. The government would go on to create urban housing programs. These programs were created to make homes for these people to live in. At the time it provided a place for people to live but as the populations grew it became a more cramped and rundown area because of the large populations in one place. These reforms eventually led to these areas becoming dangerous, they were rundown, and it created a hole that was difficult for people to get out of.
drops increasingly low. Houses are built with cheaper, less expensive materials and are built with the same model of construction
“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
This high demand can be due to what many people call “historical low interest rates” as more people are interesting in home ownership especially young people to take advantage of these low rates. A prosperous tech industry in the area that keeps attracting highly skilled workers who earn higher than average incomes increases demand. In her article “Housing affordability crisis drives Bay Area middle-class exodus”, Mary Ann Azevedo explains that the Bay Area created 114,000 new jobs in 2014 and only 8,000 housing units. Azevedo further explains this low inventory, “The City of San Francisco is still producing only 2,000 housing units per year — when it has needed more like 5,000 for the last 20 years and going forward.” These statistics provide a clear picture of the seriousness of the situation and explains one of the major reasons that are driving the prices up with no sight of slowing
External Analysis Macroenviorment Analysis: · Economic- The home improvement industry is below their normal state with the present economic status. Consumers are putting their wants such as adding new appliances or redoing their bathroom on hold. Construction companies are also in a slump; with the building of new homes on a downward slope the large orders of construction companies are not being made · Technological- Technological advances have played a huge role in the home improvement industry with advancements in appliances and power tools.
The American dream was owning a house with a white picket fence. Now this dream is impossible. Individuals and families find it more difficult to find a decent home to rent in a suitable living area. According to Huffington Post, the hourly wage needed to afford a two bedroom apartment in California is at least $26 an hour. This is more than triple the minimum wage. Eviction, relocation, and inflation are the common keywords that associate with affordable housing. I 'm hoping to persuade you to support affordable housing for all. Today, I will be discussing, one, inflation of the housing market that needs to decrease, two, eviction from homes, three having to move to communities far from their work site.
... A home is a material object that exists within a concrete reality. It exists with its own qualities, a house built of materials that change and degrade over time. The costs of homeownership are harder to dismiss when one becomes disillusioned with the effects of a lack of attention to those costs. As someone with a passion for writing, my final project will be an extended expository essay about the history of homebuilding from ancient to modern times.
The affordability of housing is one of the most critical factors that determine the well being for Californians. Housing affects people’s lives in terms of education, recreation and choices for jobs. On the state level, the cost of housing has important impact on California economy, affecting the extent to which employers are able to hire and retain workers and influencing their preferences on whether to work and remain in California.
When someone makes the decision to buy or rent a home they must consider the advantages and disadvantages of each. In buying a home the primary advantage is that you actually own it. You can do whatever you want with it. Also, you are building equity as the years go by. “People today have problems saving for their future” (CNN Money, 2014). However, when they buy a home, the money they put down for a down payment is an investment. When the person sells the home they get back the down payment and the amount the property has appreciated in value. When looking at the advantages of renting it is easy to see the disadvantages of buying for some people. Even though you don’t get the money back that you put into it, renting could be a more satisfying option for some. This is because renting allows for flexibility. The person can move wherever as soon as there lease is up. Renters may see buying as “a reduction in lifestyle, moving to a smaller place, and perhaps a less expensive neighborhood.” (CNN Money, 2014). For example someone who rents an apartment enjoys how the complex keeps up the area and all the amenities it has to offer, and it is in an upper class part of town. However, when they buy they looks all the benefits, they have to do maintenance themselves, and move to an area they don’t particularly like to fit their price range.
All good things must come to and end. In late 2005, the housing bubble burst, and housing began to decline in price. People who refinanced, particularly those who financed with variable interest rates suddenly found their homes were valued at much less. The housing market became flooded with homes for sale, because the homeowners with variable rates and interest only loans could not continue to make their payments. (Greenspan) The rise in the number of homes for sale caused further lowering of home values.
Unfortunately, much more needs to be done in order to see the light on the other side. First off, the United States economy, in general, needs to improve. The economy is having a domino effect, and now it is hitting the housing industry. Our unemployment rate is up to 10%. Banks are not prospering like in the past.
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.
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.
Most people, today, are looking forward to buying their first property. When individuals decide to buy a house those individuals would have to look at all their options and all the advantages and disadvantages that come from purchasing a house. The economy plays a huge role in the decision whether people will purchase a house, purchase a condominiums, or rent property.