Housing Markets and Our Economy: An Assessment
The US housing markets are definitely improving in most states across the country. Home prices have been on the rise for the past six months and this is very good news for the overall economy. According to the International Monetary Fund (IMF)a recovery in the real estate market is key for the recovery of the economy as a whole.
IMF economist Gian Maria Milesi-Ferreti noted in a press conference in the first week of August 2011 that as the US population grows and with depreciation of housing stock, there will be increased demand that will need at least 1.5 millions to be built every year. He also noted that this will boost the growth of the US economy with the benefit extending to other sectors and industries.
The economy went down six years ago when the forces of supply and demand sent prices crashing in the real estate sector and other sectors and industries. With things now looking up with the housing markets, it is expected that the economy will benefit in a number of different ways.
One is that various businesses related to the housing market will grow. This includes manufacturers of housing materials and fittings, builders and the transporters who ferry materials to building sites. Service providers in the same sector such as real estate agents, home loan lenders, house heating installers, plumbers and others can also expect business to pick up as the housing markets pick up.
The second way the economy will get a lift is that those who aspire to buy a house will be trying to do so before home prices go any higher as has been the trend over the last six months. More transactions will mean that there will be more money in circulation and that is good thing for the economy.
The foreclosures backlog
As more and more aspiring home owners make their move and buy houses, the backlog of foreclosed properties is beginning to ease. This includes the houses that were seized by banks as well as those that were disposed through short sales where a lender approves a sale for the less than the amount that is owed. Even if supply does not fall any further or is does so very slowly, with demand picking up like it is, the housing markets will still be vibrant enough to sustain price gains.
With this backlog easing, the economy will benefit with the huge amount of cash that was tied up in capital invested by contractors and lenders coming back into circulation. They will be able to make returns on their investments and put money back into the economy.
Statistics show that home loan borrowers owed $698 billion more than their homes were worth in the second quarter of 2012. The increased demand is helping to turn the situation around. This amount came down by $2 billion between the first and second quarters of the year.
Government boosts and incentives
The economy will also get stronger from the attention that the Government is giving this sector. The recent move at the beginning of September, 2012 by the Federal Reserve to push mortgage rates even lower than they already are is aimed at giving prospective home owners to make their move and buy a house.
The Central Bank plans to put $40 billion a month into the purchase of mortgage-backed bonds. The goal is to force the yields on these securities to come down and this started happening as soon as the announcement was made before actual sale was already made. Housing markets will be getting a real boost through this incentive and the economy as a whole.
Another way housing markets affect the economy is that lenders are now being much more vigilant about whom they lend to. This means that there is not much chance that the panic and recession that resulted from financial institutions giving too many bad loans will not be seen again.
It had a great impact on the economy when loans could not be paid back even when there was still relative stability. This one specific sector that supports housing markets that declined sharply dealing the economy a sharp blow at the same time.
Great strides have been though especially in the private sector by non financial companies. As a whole, American companies have done a lot in cutting down their costs and improving their profit margins to the highest levels they have been in the last 50 years. This means more and more people will be able to afford houses. The financial sector has also recapitalized well. The capital institutions have been holding as assets has jumped reflecting their determination to improve profitability.
Looking ahead at the economy through the lens of housing markets, there is every reason to believe that the US economy is steadily moving ahead towards making a strong recovery. When it's time to explore your home buying options, download "The Only Mortgage Loan Options Guide You Need" to get started. Click the button below.
(creative commons photo credit)