With the decline on the disposable income of every household in the economy, domestic consumption started to deteriorate creating a negative impact on various industries including the housing industry. It was identified based form the data collected by the Bureau of Labor and Statistics that the compound annual rate of the housing industry’s CPI for February 2008 was equal to 2.8 percent, with November 2007 exhibited the highest changes from its preceding month equal to 0.4 percent, as compared to the 4.2 percent of February 2007.
This only means that the rate of increase in the prices of housing units starts to slow down but still remains high considering the disposable income every household currently have. Furthermore, employment rate plunges down along side with the housing market as August 2007 recorded the highest lay-off on the history of housing market equivalent to 21,000 as compared to only 1,000 lay-offs happened last August 2006. With this large number of workers laid-off from their jobs, plus the increasing number of bankrupt housing companies, employment rate started to decline.
Though the GDP of United States remains high despite of the turmoil in the housing market, but its GDP growth rate significantly decline from 2006 to 2007 from 2.6 percent to 1.5 percent respectively. This only means that housing market still imposes barrier towards the economic growth of United States. Housing starts was down by 28.4 percent from 2006 to 2007 as consumers cuts their demand on housing units due to limited budget and high cost. In order to prevent the said depression of the housing market, federal government continued slashing down their interest rate to guide housing companies to recover financially since housing sales has been declining since 2006.
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Last January 2008, the Federal Reserve cut the interest rate to 3.5 percent in order to stabilize the economy and prevent the impeding economic recession (Presse, 2008). Furthermore, it was also identified that new home sales declined by around 46 and 30 percent on 2006 and 2007 respectively. The said record was the lowest annual home sales since 1995. The above identified economic factors help most of the economists and market analysts in determining the future performance of the housing market as well as of other industries in the economy.
In this regard, the aim of this paper is to identify various macroeconomic factors that affect the performance of the housing market and how it affects the behavior of the entire housing market. Furthermore, discussions on the future condition of housing market will be presented in order to easily understand how economists and market analysts projects the performance of housing market. Expect also at the end of this paper alternatives that would address macroeconomic factors that negatively affects the stability of the housing market and its evaluation that will serve as the guide in choosing the appropriate solution for the instability of the housing market.
Based from the given data, arguments and examples above, it is therefore clear that housing market is indeed performing inefficiently due to various macroeconomic factors. Depletion of consumer’s disposable income made significant negative effects to various macroeconomic factors that later on serves as the source of instability of many industries in the economy including the housing market.
Furthermore, the projections of most economists and market analysts regarding the future condition of the housing market greatly affects how financial institutions establishes their lending transactions with the housing companies which adds up to the financial problems of the latter. With the aid of fiscal and monetary policies of the federal government, the issues concerning the instability of the housing market are solved.
Presse, A. F. (2008). Fed Slashes US Interest Rates to 3.5%. Retrieved April 3, 2008
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