How does the housing market impact the economy?
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Housing market is the backbone of our economy?
Are you asking a question? or are you ranting? Housing represents the backbone of our economy in several ways: 1. It is the single biggest part of most families' budgets. It varies from place to place, but in the San Francisco Bay area, even the Labor Department figures that housing cost, on average 45% of a family's income. Nationwide, the Labor Dept figures that housing (including utilities such as heat, water, sewage, etc.) cost most families around 42% of their income. http://www.sfgate.com/cgi-bin/article.cg... Note that this applies to renters as well as owners. 2. The equity in homes is the largest chunk of personal assets for most people: for about 1/3 of homeowners, it is "all or most" of their assets, for another 1/3 it is "about half" their assets. Anything that changes the value of their homes will dramatically affect how they feel about their personal financial status. 3. Aside from the cost of housing itself, the housing market is important for its piggy-back effect. When people move into new homes, they tend to buy new furniture and new appliances, etc. so the housing market is even ore important to the economy as a whole than its percentage of the GDP might suggest. 4. Last, and perhaps trickiest, is that the economy seems to be driven by the margin rather than the mean or median. People take the steady state for granted and pay more attention to the changes (this is clearly true in theoretical micro-economics, but is not so clear in macro-economics in general). This suggests that even if the housing market weren't so large, its spectacular rise over the past decade, followed by its sudden drop have impacted the economy greatly. Health care is a far smaller part of the economy, though it is rising fast. For most families, health care still represents less than 10% of their expenses. With contributions from employers and the state and federal governments, the total amount is somewhat higher, about 16% of GDP http://www.kaiseredu.org/topics_im.asp?i... Also, while health care costs are rising steadily, there have been no big surprises, which the economy hates.
Are rising house prices a sign of a good or bad economy?
A look at how the housing market and changes in house prices affect the rest of the economy. In summary:-Rising house prices, generally encourage consumer spending and lead to higher economic growth.-A sharp drop in house prices adversely affects consumer confidence, construction and leads to lower economic growth.A rise in house prices creates an increase in wealth for householders. As a consequence of this increase in house prices, householders will generally:-Increase in equity withdrawal. A rise in house prices enables homeowners to take out a bigger mortgage. Banks can lend more on the basis of the increased price of the house. Households could use this bigger loan to spend on other items. This can create a significant increase in consumer spending.The good news is Higher prices increase home equity and help bring some owners above water and increase their wealth. People with a lot of equity are more likely to start small businesses or invest in more real estate and are more likely to move up the economic ladder.The bad news is Incomes haven't kept up. , pay growth has been slow. Low wage growth makes it harder for buyers to enter the market, particularly first timers and borderline borrowers. When home prices are far outstripping incomes, it will take out the marginal buyer who can qualify for a certain loan and down payment. If home prices continue to increase, those properties are no longer affordable for the first time investors.I hoped that answered your question. You can find out more by visiting us at FINANCIAL FREEDOM | PASSIVE INCOME | REAL ESTATEBilly Poulos
The US housing market is slumping in the last half of 2018. Do you think that this is more like 2007, or 1994?
It is going to be worse than the crash that started in 2007.The Economist - The World in 2019
How do high interest rates affect the housing market?
As David Schatsky notes, higher interest rates have a complicated effect on housing, we might expect that more people will borrow to pay for houses when rates are lower. This would lead us to guess that higher rates lend themselves to lower prices, and lower rates could mean higher prices. This is not the whole story however because in addition to the question of interest rates there is the question of loan approval (credit quality). When the U.S. housing markets crashed interest rates were not as low as today but still pretty low, but people were't getting loans because banks became much stricter about who they approved. The people buying houses at the market bottom were mainly investors who payed for houses with cash or loans that they were extremely well qualified for. It is also important to consider is that changes in interest rates affect do not affect all housing markets equally. Location, location, location as the saying goes, is much more important in determining housing prices. This is because when we say "location" what we really mean is "local economy". Houses are expensive compared to other purchases, and the money people are prepared to pay for a place reflects the amount they can expect to earn living in the area. After the U.S. crash rates have been really low but prices in places where the local economy is weak have not recovered nearly as well as (Detroit vs. NYC or Chicago for example).The point is, you should definitely consider multiple factors rather than just interest rates when predicting the performance of the housing market. The ability to acquire credit and the strength of local economies are two other factors to consider.
How does increasing rate affect housing market ( real estate)?
Increasing interest rates makes it harder for people to borrow the money to buy a house. That makes it harder for people to sell their houses - and the whole economy sort of slows down and stagnates. You end up with a lot of houses sitting on the market for sale - lots of them empty. And then people can't make their payments and lose their houses - so you have even more houses sitting vacant on the market. The worst Depression I went through was in the 1980's when Reagan came in. The interest rates were 15% and above - no houses were being bought or sold. The US government was ending up with lots of repossessed houses. It was quite a mess. I think Reagan began to sell of the country to the Chinese - and that improved the economy and lowered the interest rate. Now the country has been fairly thoroughly sold to the Chinese by Bush to run his two needless wars. And borrowing trillions of dollars from the Chinese might come to an end. So we could see quite a long Depression - and we won't have the safety valve of borrowing our way out the trouble. We might have to use our heads this time around, and maybe something good will come out of this.
What does Microsoft giving $500 million for housing say about the market economy for housing in Seattle?
It really doesn’t say anything at all about “the market economy for housing”.What’s the alternative to it?I suppose you could build a bunch of grim, Soviet-style Khrushchyovka, tearing down residential housing to do it, and then move people into the larger number of government-owned apartments in exchange for the nice houses where they used to live.Or you could go further back, into the Tsarist Russian era, and build Kommunalki instead, and stuff anywhere between two and seven families into each apartment.Personally, I would have spent the money to start moving the Microsoft headquarters 25–35 miles away, into the least densely populated area I could find, which didn’t have natural barriers to expansion, like an inconvenient ocean bounding the land on one or two sides.By moving the epicenter of Microsoft, you remove the upward market pressure on housing in the area.A $500 million subsidy last only as long as the money lasts. Temporarily subsidizing “Would you like fries with that?” jobs is a long term losing proposition, since there will always bee more need for additional subsidy.Structuring the subsidy investment as a long term annuity, and then throwing off money for subsidies in more or less perpetuity might work, but to keep the annuity growing to cover more subsidies means even fewer initial subsidies.Going the longer term route — well, half a billion dollars is chump change, compared to what would be needed to avoid market economics entirely.
Explain how the economic market system provides a strong incentive for technological advance?
The free market provides rewards for people or firms who can reduce costs or provide more useful products. Technological advances tend to allow production at lower costs, and to allow production of more useful products.