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Home Building And The Economy Essay

2139 words - 9 pages

Home Building PAGE \* Arabic 4
Home Building and the EconomyChris BarkerAaron CrossonDeb HeltonTim JohnsonMr. Hector MoralesBusiness Economics I ECO/360October 29, 2007AbstractThe housing industry is a major part of the US economy. Demand is high during favorable economic times, such as those recently witnessed. Unfortunately, as has been witnessed in the housing industry, high demand times can result in the production of goods outweighing the supply needed leaving higher volumes of inventory when shifts in the economy arise. Nevertheless, a healthy job market, continuation of higher education which results in higher individual and family incomes, favorable interest rates, and sufficient money supply will most definitely help in ensuring the success of the industry as well as the future of the United States' economyHome Building and the EconomyEvery individual in the world has certain wants and needs to fulfill. The need for shelter is very important and ranks at the top of the persons needs right along with food and health. As individuals mature, the need to find housing for an individual becomes a very important goal to fulfill. Anyone can walk along a residential street and look at homes for sale, but do they truly understand all the economic factors that were working together to allow the homes to be built in the first place. The economy is a complicated system overall, but how does it affect the home building market specifically and how can understanding this system help us to better understand when to buy or not buy a new home?The housing bubble has persisted since 2001 in the United States. The bubble has been most apparent in populated areas of the United States, for instance, Los Angeles, New York, and areas in the Midwest like Chicago and Detroit. The housing bubble is an economic bubble which happens because the value of property will inflate until it exceeds the income of the consumers. What has happened in the last 10 years is that consumers have bought homes either out of their means to begin with, where they cannot truly afford their mortgage, or homeowners have used the excess amount of equity in their homes for other means. The result is the home is no longer affordable to the current homeowner or perspective buyers. The housing bubble was originally caused by unusually low interest rates, lenders having substandard lending procedures and qualifications, and the push to "keep up with the Jones.'" (Wikipedia)The inflating bubble "burst" in late summer of 2005. Since 2005, when the bubble burst, the United States economy has suffered. Sub-prime lending organizations have completely collapsed, and even Countrywide Financial, the largest lender in the industry barely avoided bankruptcy in July of 2007. Homes are valued far below what consumers currently owe, the real estate market is flooded with homes for sale and not nearly enough potential buyers and foreclosure rates are at an all time high. The reason this housing bubble could...

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