Macroeconomics - Homebuilding Industry

Many economists thought that when the U.S. lodgment boom ended, so would the overall economic boom. Yet housing starts and sales are down from crest levels, and while various reports indicate housing prices are stillness ahead of year-earlier levels, that masks the fact prices indeed have declined over the historic six months. So why has the decline in housing not yet reduced the GDP and real increment roll of the U.S. scrimping? A declining housing market preserve negatively affect the economy in three ways. set glowering and most obvious, there are few construction workers, fewer purchases of construction materials, and reduced income for brokers. Second, home-equity refinancing is reduced as prices level wrap up and then decline, which, in turn, reduces consumer spending. Third, defaults and foreclosures increase, not only wiping out individuals who bought much house than they can afford, but many financial institutions as well. It is the third effect that will finally bring the economy down.

The good news, it wont happen for several years, well past our capacity to forecast. The rash of defaults and foreclosures usually peaks about three years later on interest rates rise and housing prices level off and then decline (Evans, M. 2006).



History has proven this to the economy, this current mould of interested rate hikes started in 2005, suggesting that, the major negative uphold of a declining housing market will not his until 2008. thither will be some modest decline in the real growth this year and next, but an increase in real GDP (BEA, 2006).

GDP slowdown may give federal official pause, according to businessweek.com (Englund, M. MacDonald R. 2006). The U.S. economy grew at a disappointing 2.5% rate last bum, raising market expectations that the Fed will bar interest rate hikes. U.S. gross domestic product for the quarter underperformed. The underperformance of...

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