By Hannah Fahey
After our recession of about four
years that was created greatly due to people buying properties for more than
they could afford to pay back, the housing market is finally starting to get
better as of about September of 2012. It has taken the US and the entire
world’s economy a long time to work off the excesses of the boom. This means
that all the abundance homes that never should have been built in the first
place or were sold to people that they shouldn’t have been have been cleared
from the market. As we all have learned in AP Economics a surplus will lead to
the supply/demand curve not being at equilibrium and the prices lowering. Now that
this surplus has been accounted for, the housing market has been moving the
closest to equilibrium it has since 2008.
This equaling out of the housing not
only benefits the housing industry, but it will slowly work its way to balance
the entire economy. Job creation in the housing industry will lead to those
workers spending more money in other industries which will lead to more jobs
being created in other industries and so on and so forth. There has been
debacle though, “analyzed data from 1982 to 1999 concluded that rising home
prices increased consumer spending, but falling prices did not reduce spending
significantly,” (Norris). This point has
been proven false though, by what has happened in the past four years. It has
been now realized that the increase in spending because of an increase in
housing prices was less than the decrease in spending due to a decrease in
house prices. Some people in the houses they are in now, the only way they
could afford them is because of the dramatic drop in housing prices, and are
now chained to those new homes because they know if they leave they couldn’t
afford anything as nice as what they are used to.
The
proportion of sales that were forced as being foreclosed homes or short sale
homes, where the house is sold for less than the amount owed on the mortgage,
has been slowly declining. This astonishing fact has to do with the banks
mainly, because they are finally starting to address their backlogged
foreclosure inventory by finally putting behind them the operational and
regulatory issues that have plagued them in the past. It now could possibly
lead to the Federal Reserve allow the interest rates to finally rise, which
then could lead to a rush of people buying quick, worrying about the rising
prices and mortgage interest rates increasing too fast. This probably will end
up happening, Norris believes, but not as badly as in the earlier days, “People
do know now that prices can fall, demographics will limit the number of new
families that need housing, and banks are far less willing to make loans than
they were,” (Norris). These are precautionary so that what happened in 2008
won’t happen again right after this new housing boom starts to shape up.
Now that the housing market is finally gaining strength, the whole entire economy will benefited. In a round about way, with a decreasing price in the costs of houses individuals and families will have more money that they can put into the economy in other forms. They will have more money to spend on consumer consumption- helping smaller industries to grow.
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