Week 1 Assignment_Housing Demand[1]

Week 1 Assignment_Housing Demand[1] - Housing Demand...

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Housing Demand Chapter 1, problem #2 (page 17). Explain your analysis in a one to three page word document on the  impact of the reduction in housing demand on the basic business environment. In the summer of 2007, the housing market and the mortgage market were both in a decline. Housing  prices in most U.S. cities began to decline in mid-2006. With prices falling and the inventory rising, the  production of new homes fell to around 1.5 million in 2007 from 2.3 million in 2005. With new  construction falling dramatically, it was expected that construction employment would fall and this would  have the potential of slowing the national economy and increasing the general unemployment rate. Go to  www.bls.gov  and check out the recent data on total employment and construction employment. Have they  gone up or down from their levels in August 2007? What has happened to the unemployment rate? Go to  www.ofheo.gov  and look at the housing price index. Have home prices risen or fallen since August 2007?  Finally, look at the latest GDP release at  www.bea.gov . Look at residential and nonresidential investment  (Table 1.1.5) during the last 2 years. Do you see a pattern? Does it explain the employment numbers?  Explain your answer.  Real estate contributes  10% of the total U.S. economy's output . If real estate declines, so do construction jobs, thus  potentially increasing  unemployment A decline in real estate sales evenutally leads to a decline in real estate prices. This then reduces the value of  everyone’s homes, whether they are actively selling it or not. This then reduces the amount of home equity loans the  homeowner can get. This, then, reduces consumer spending.  Over 70% of the U.S. economy is based on personal consumption. A reduction in consumer spending will contribute  to a downward spiral in the economy. This results in further unemployment, further reduction in income, and further  reduction in consumer spending. If the  Federal Reserve  doesn't intervene (by reducing interest rates, then the country  could fall into a  recession . The only good news about lower home prices is that it lessens the chances of 
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This note was uploaded on 07/07/2011 for the course BUSINESS 350 taught by Professor Mitchell during the Fall '09 term at Troy.

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Week 1 Assignment_Housing Demand[1] - Housing Demand...

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