ECO 561 Week 5 (11 slides)
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ECO561Week5AssignmentEffectivenessoftheCounter-CyclicalPoliciesHousehold5.pptxTHE HOUSING MARKET
Great Recession
Mortgage collapse
High interest rates
Restricted supply of new homes
https://roselawgroupreporter.com/2015/05/freddie-mac-housing-markets-continue-to-get-better-ariz-among-most-improved/
In the course of the most recent decade, no occasion has impacted the housing market more than the worldwide financial downturn that started in December 2007. Amid this seismic financial move, alluded to as the Great Recession, many, if not the vast majority, confronted a bunch of uncommon challenges. The subprime contract crumple prompted numerous individuals losing their homes and monetary stagnation. Americans confronted money related debacle as the estimation of their homes dropped well underneath the sum they had obtained and subprime loan fees spiked. Month to month contract installments relatively multiplied in a few sections of the nation. Much of the time, borrowers were in reality better defaulting on their home loan advances instead of paying more for a home that had dropped sharply in esteem. Thus, home building saw a huge decrease, bringing about a confined supply of new homes for a consistently developing populace. The absence of supply and the expanded request saw the land condition transform into a vender's market. More individuals were currently pursuing less homes, which expanded home costs.
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HOUSING PRICE INDEX
HOUSING PRICE INDEX
2011 THE AVERAGE PRICE WAS DOWN TO JUST 300K US DOLLARS
American housing market reform
Today’s average housing price index
The housing price index averaged around 378k us dollars in 2007, by 2011 the average price was down to just 300k us dollars.
During 2011, under the Obama administration, the American housing market reform was created. The housing market reform was created to increase the number of jobs for US citizens and help restore the housing market. Today, the average housing price index is back up to just over 400k.
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Household income
2007 average household income
decrease in average household income
By 2011 the average household income dropped down to a little over 53k year
2016 average household income
The average household income for families were up before the market crashed. The decrease in average household income played it’s part in the housing market crash. The average household income in the US was around 58k per year in 2007, by 2011 the average household income dropped down to a little over 53k per year. In just two years (2013) the average household income was up to 55k a year and today the average household income is up to 59k per year.
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Household income
Here is a depiction of the Household Income from 2007 to current.
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Year
Income
unemployment
Unemployment rate
Affects of unemployment to housing market
Current unemployment rate
In 2007 the unemployment rate was over 4 percent but due to the affects of the market crashing and the loss of jobs, the unemployment rate doubled by 2009. The fall of the housing market caused a loss of jobs in many industries which affected many peoples household income and their ability to afford a house. This would all change over the next coming years as the unemployment rate would be cut by more than half by May of 2018.
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unemployment
Here is a depiction of the Unemployment from 2007 to current.
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Production and business activity
2007 Housing sales
Decrease in housing sales
Current housing sales
In 2007 the price to purchase a home on average was less than it was now due to the crash of the housing market. However, even though there were less home buyers, the price of homes did not decrease as you thought it would. The cost of living dropped for a short time, but by 2009 the market was already starting to see a balance in cost of living. By 2011 due to the Housing Reform, the market price was climbing back to what most people expected them to be.
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Housing bubble
Supply
Demand
A housing bubble is a run-up in housing prices fueled by demand, speculation and exuberance. Housing bubbles usually start with an increase in demand, in the face of limited supply, which takes a relatively extended period to replenish and increase. Speculators enter the market, further driving up demand. At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices — and the bubble bursts.
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Housing market crash
Loss of jobs
Supply
Increase of Demand
The crash of the housing market was caused by the loss of almost 1 million jobs to various professional industries causing the loss of many homes thus driving the housing market into a downward spiral. The rise of the housing marking (bubble) began in 2011 with the Housing Market reform under the Obama administration. The reform was created to help bring jobs back to America helping lower the unemployment rate and allow the demand for housing to increase. The increase in demand would create jobs for the construction industry and real estate industry while driving the market back up to a healthy state.
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Prior government policies and legislation
Community reinvestment act (cra)
Fannie mae
Freddie mac
The Community Reinvestment Act (CRA), Fannie Mae and Freddie Mac, punishment free renegotiating of home credits, assess inclinations allowed to home value acquiring, and lessened capital necessities for banks that hold home loans and home loan supported securities (MBS) have all debilitated the benchmarks for giving home loans and the lodging money framework itself. Faulting ravenous brokers, bumbling rating organizations, or different performers in this uncommon show misses the point, maybe intentionally, that administration approaches made the motivating forces for both a lodging bubble and a diminishment in the bank capital and home value that could have alleviated its belongings. To keep a repeat of this fiasco, it would be far superior to change the ruinous government lodging approaches that conveyed us to this point than to sanction another administrative administration that will frustrate a brisk recuperation and impede future monetary development.
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Fiscal and monetary policy
Federal government (fiscal policy)
Federal reserve (monetary policy)
Economic growth
Policy influences
Monetary policy is principally worried about the administration of loan fees and the aggregate supply of cash available for use and is by and large completed by national banks, for example, the U.S. Central bank. Fiscal policy is the aggregate term for the exhausting and spending activities of governments.
Fiscal policy influences total request through changes in government spending and tax collection. Government spending and tax assessment impact business and family unit wage, which direct customer spending and speculation. Fiscal approach impacts the cash supply in an economy, which impacts financing costs and the swelling rate, the fiscal policy put in place make an impact on economic growth. Additionally, money related arrangement impacts business extension, net fares, work, the cost of obligation and the relative cost of utilization as opposed to sparing.
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