How the Economy is Affected by the Home-Building Market

Currently, many economists are arguing over what causes the home-building market to suffer. Some speculate that the supply is not meeting the current demands, since there are still many homeless families. Everyone in the home-building field is feeling the crunch, due to the market's unrest. According to Tan (2007), the recent Subprime mortgage crisis is still a danger, even though the news has stopped discussing it. Many economists believe that the economic demand, inequalities, and policies are affected by the market's unrest. Others are blaming the recent "natural disasters" for a "slower market" (Cashell & Labonte 2005) with more demand for homes. No matter what the differences, economist "wonder who will be holding the bag" (Tan, 2007), once the dust has finally settled.

Economic Demands

Housing Shortage

According to Lowe (2002), the lack of affordable housing in the U.S. is causing the homeless rate to rise considerably. Over, "16.5 million households" are spending "more than half of their income" on a place to call home. However, many families are renting houses or are considered to be living in "severely sub standardized housing". Many of these families would become homeless if they lose the job or get sick, because they living paycheck to paycheck. In 2002, "5 million homes" were needed for families, who are homeless and in need of "governmental housing assistance". According to Lowe (2002), many people can't pay the fair-market price for a house, even with two people working. Hopefully, the government can fund a program, which will help these families find affordable housing in the near future. Furthermore, time will tell, whether the supply will finally meet the current demand for housing.

Natural Disasters

During 2005, the economy took a devastating hit when "Hurricanes Katrina and Rita" ravaged and destroyed the "Louisiana and Mississippi" coast. Many "survivors" were relocated to the "surrounding states", which caused a "strain" on their overall economy. According to Cashell & Labonte (2005), these states only supply about 2% percent of the nation's gross domestic products. However, "The National Association of Home Builders" estimates that over 200,000 homes were "damaged beyond repair". Therefore, many survivors will be "rebuilding" for many years to come, until they reclaim some portion on their lives. Fortunately, the "economic growth in the first half of 2006" has been better than "first predicted". Luckily, the nation isn't facing "recession", instead many survivors will be looking for affordable housing or rebuilding their home in the near future. Therefore, they will be competing with the "5 million" other "homeless families" to obtain "affordable housing" (Lowe, 2002).

Construction Business

Some economists fear the U.S. is heading for a "recession", while others claimed that customers are "spending less" than in previous years. Many mortgage lenders are struggling to stay in business, while homeowners with good credit are being "forced to sell" their homes. On the upside, most economists believe that with "time", the "failing housing market" will begin to improve. Therefore, construction businesses will continue to struggle, "in this difficult time for the U.S. consumer". According to Nutting (2007), housing construction has hit an all time low on September 2007, which has contractors worried. Economists believe that the home prices will fall by "5% this year and nearly 4%" next year", which has construction workers complaining that they are "getting poorer". But, "since the Great Depression", there has not been such a decline in housing prices. Unfortunately, with "lower prices", the construction business will suffer a "lack of demand". However, these "pessimistic" contractors believe that the "supply and demand" is not balancing out. Many economists are blaming recent foreclosure and higher monthly payments, for the "record number of vacancies" in the overall market. Some economists fear the U.S. is heading for a "recession", while others claimed that customers are "spending less" than in previous years. Many mortgage lenders are struggling to stay in business, while homeowners with good credit are being "forced to sell" their homes.

Unfair Wages

Unfortunately, the "technology boom" is also, blamed for the wage inequalities, just as the demand for "high-level" workers. Many economists have their own theories, but none has successfully explained the current dilemma facing America's workers. Either way, "the working poor" is getting poorer, while the "high skilled workers" are getting richer. However, according to the Mr. Varian, no one can explain why the wage or "income inequalities increased" in the "1990's". Yet, economists believe that "immigration and outsourcing", have played a role in creating the inequalities that exists. Now, many of America's working class is attempting to get a higher education. According to Thoma (2006), Economist Hal Varian believes that the average highly skilled worker brings in more income than the average unskilled worker. Since, companies were paying more for the workers, who have technological skills instead of home building skills. Basically, Mr. Varian believes that the worker must be in the "right place" with the "right skills", in order to land a decent paying job.

Social Consequences

Many people are arguing that there is a distinct connection between the where people live and how they act. Some experts also believe that the "housing policies" have a major "impact of citizenship, crime, and social connection". According to Glaeser & Sacerdote (2001), the Uniform Crime Reports and National Crimes Victim Survey show a rise in personal crimes and victimization in multi-unit building structures. However, some believe that "single-family homeowners" are more likely to "police themselves", which will cause them "to be involved in local politics". Amazingly, research has also shown that "public housing" has a "lower crime", despite the "multi-unit housing". So, experts believe that "types of housing" and "social conditions", actually does lead to victimization. According to Glaeser & Sacerdote (2001), they believe that the externalities should be considered before building new house.

Immigration Affects

According to McCombs &Stauffer (2007), they believe that immigration is a positive way, to keep the prices low. Since, the "Mexican and Latin American immigrants", actually have over "34 percent of Arizona's home building industry". Basically, these immigrants will usually "work for lower" prices and will "complete jobs that no one wants". Some believe that the immigrants will also "work faster" and complete a "new home at a cheaper cost". Currently, they estimate that "$38,000 on a median priced $267.000 Tuscan home". Unfortunately, the some believe that "prices will rise immediately", after the government is able to deport the illegal immigrants. Many illegal immigrants are trying to "earn the money" needed, in order to become a "legal citizen". Therefore, the government should find a way to "keep them working", so they can help keep wages fair and prices low.

Economic Obstacles

Energy Home

Many of the "governments programs like Energy-Star" have helped promote awareness of energy efficient home. Basically, "saving energy" or "strengthen the economy" are some of the "positive externalities" of owning an "Energy-Star home". However, "higher construction cost" and "lack of knowledge" are some of the reasons customer are hesitant to buy. The internet and "social-networking" among friends, has helped to spread the word about these types of homes so far. But, "government intervention" is trying to help home-owners understand the long-term benefits of buying these homes. According to Hudson (2007), energy efficient has been affected by many obstacles, which keeps them from impacting the home-building market. The "new government programs" and "future energy concerns" may allow these homes, to become a hit with future homeowners. However, the government is hoping to influence customers, by giving them incentives when they select these types of homes.

Monetary policies

According to Hoeing (2007) the overall economy will grow and improve, as inflation decreases throughout this year. However, with the housing market and labor market can cause problems for the economy throughout 2007. First, the housing market is "showing signs" of a possible bottoming out". Also, the "the weaker residential investments" and "increases in interest rates" are being blamed for the "cloudy scene". The second market that economist are concerned about is the "labor market" . According to Hoeing (2007), the tighter labor market could build more pressure of labor cost. This may cause the "energy price" to rise and could cause "inflation" occur also. In 2006, "unemployment declined", which has "increased the pressures" In the cost of paying the labor. Also, the "monetary policies" were able to "moderate economic growth and stable energy price pressures", which helped to reduce the "core inflation rates". These monetary policies have had a "direct and indirect effect on the economy", since current demand for "home construction" is low. Plus, "home values" have lowered, while "house prices" increased. Now, many home owners are unable to pay their "mortgage", so "policymakers will need to monitor the situation carefully" this year.

Fiscal Policies

The "fiscal policy" states that "the federal government should maintain a structural annual budget surplus". They must also, work "to reduce the federal debt", which will "improve economic growth and lower long-term interest rates" . During "1969 to 1997" the government has "continually" spent more money than was available in the "federal revenue". But, "1998" the nation's "economic health" began trying to reduce the "deficit". Basically, the government uses the federal budget to pay for "Social Security", housing, education, health, "public assistance, and other programs. However, since "2002" a "slower economy" began affecting "consumer spending" and the overall "federal budget". These issues can lead to "economic slumps" and "recessions" in the "other markets" that supply the "home building industry". Therefore, the government wants to stimulate "economic health", by offering "first time buyers" programs like "tax credit" and "tax incentives" (NAHB, 2007).

Conclusion

Every family in America has the right to own a safe place to live, but owning a home is not free. Unfortunately, the supply and demand affects the price of the home in many ways. If wood or appliance markets raise their prices, then the homes construction prices rise also. The many inequalities have effect the industry as well, causing problems that keep the wages unfair and prices high. Some blame immigration for high prices and some say that the obstacle to home owner must be changed. Either way, the economy suffers, when the home-building industry begins slowing down. It is important for homeowners and economist both, to understand the positive and negative externalities, which affect the "economy's health" (NAHB, 2007). The government is trying to create programs that will help raise the demand for homes. In order to strengthen the entire home-building industry, it is important to supply affordable housing. Therefore, millions of families will have a chance to own a home, even though they are living paycheck to paycheck.

References:

Cashell B. & Labonte M. (2005) The Macroeconomic Effects of Hurricane Katrina
Retrieved on the World Wide Web on September 26, 2007
http://fpc.state.gov/documents/organization/53572.pdf

Glaeser, E. & Sacerdote, B. (2001) The Social Consequences of Housing
Retrieved on the World Wide Web on August 26, 2007
http://www.economics.harvard.edu/hier/2001papers/HIER1915.pdf

Lowe, T. (2002) Crowley Describes Affordable Housing Shortage
Retrieved on the World Wide Web on October 4, 2007
http://www.usmayors.org/uscm/us_mayor_newspaper/documents/02_04_02/crowley.asp

Hoeing, T. (2007) The National Economy and Monetary Policy in 2007
Retrieved on the World Web Wide on September 25, 2007
http://www.kc.frb.org/SpeechBio/Hoenig1-19-07.pdf

Hudson. P.(2007) Government Intervention In the Energy Efficient Home Marketplace
Retrieved on the World Wide Web on August 26, 2007
http://www.michigan.gov/documents/cis/CIS_EO_GovIntervention_EEHomesMarket_198332_7.pdf

Nutting, R (2007) Builders' confidence falls to lowest level ever
Retrieved on the World Wide Web on October 5, 2007
http://www.marketwatch.com/news/story/builders-confidence-falls-lowest-level/story.aspx?guid=%7B8E0CBD2F-E5BB-4B0F-B404-1F3A297D3857%

McCombs, B. & Stauffer T. (2006) Illegal labor helps hold down home prices
Retrieved on the World Wide Web on September 11, 2007
http://www.shns.com/shns/g_index2.cfm?action=detail&pk=BORDER-HOMES-06-16-06

NAHB (2007) Fiscal Policy
Retrieved on the World Wide Web on October 7, 2007
http://www.nahb.org/generic.aspx?genericContentID=9009

Tan, T. (2007) The Subprime Crisis Has Quieted, But Hasn't Gone Away
Retrieved on the World Wide Web on October 6, 2007
http://seekingalpha.com/article/48975-the-subprime-crisis-has-quieted-but-hasn-t-gone-away

Thoma, M. (2006) Hal Varian on Inequality: The Right Place at the Right Time
Retrieved on the World Wide Web on September 11, 2007
http://economistsview.typepad.com/economistsview/2006/09/hal_varian_on_i.html