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The Housing Market As An Economic Indicator

2259 words - 9 pages

There are a group of indicators that economists use to determine when a recession is about to occur. The indicators are:1.Average workweek for production workers in manufacturing2.Average weekly claims for unemployment insurance3.Manufacturers' new orders for consumer goods and materials4.Vendor performance measured as a percentage of companies reporting slower deliveries from suppliers5.Index of consumer expectations6.New orders for nondefense capital goods7.Number of new building permits issued for private housing units8.Stock Prices - 500 common stocks9.Interest rate spread - 10 year government bond less federal funds rate10.Money supply, M2(Colander, 2004)As a group the indicators are used to predict future economic activity. For example, a consistent or consecutive adverse or unfavorable report of a majority of indicators could indicate a possible recession. One of these predictors is the number of new building permits issued for private housing units. (Colander, 2004).The focus on the number of new building permits issued for private housing units as an economic indicator requires that data be gathered and reviewed on a regular basis. Housing starts or construction reports are an effective tool to understanding the current position of the economy. Housing starts can denote how much money the general public has. If there is an increase in home construction it can likely indicate that there is an increase in money available in the economy. The intent of this discussion is to look at the housing market and determine how it calculates into the economy, review the history, determine the current climate of the market, identify a long and short term goal for the market, and predict the next quarter of activity.If there is consistent growth in housing starts and construction, the Federal Funds Rate might likely be considered low because individuals are willing to borrow money from the bank to start these homes. The housing market can be closely related to mortgage rates and the bond market. Forecasted interest rate activity can be attributed to the fluctuations in the housing market. It can be expected that as interest rates rise there would be a decline in the housing market.The most recent information available from the Department of Housing and Urban Development is from the 4th quarter of 2006. According to the National Data on Housing Production, the number of permits for the construction of new housing units was down 9% in the 4th quarter of 2006 and down 27% from the 4th quarter of 2005. The total number of permits issued in 2006, 1,837,300, was down 15% from 2005. See Table 1.In relation to the overall economy, the housing market is not considered a huge market mover. However, the Census Bureau reports that the housing industry represents over 25% of investment dollars and a 5% value of the overall economy.New housing construction data is collected by the Census Bureau in two surveys:The Building Permits Survey (BPS) produces estimates of...

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