Eco/561 Market Equilibration Process Essay

The housing crisis of 2008 can trace its origins back to the stock market trends of the mid- to late 90 's. During a period of extended growth in the stock market, increased individual wealth among investors led to generalized increases in spending, including in the housing market. With more disposable income in the pockets of consumers, the demand for housing increased in the late 90 's. Due to the fact that homes are large projects and their construction takes a large amount of time, the supply of homes in the market is inelastic on the short term. Because of the fixed supply of homes, as per the law of supply, which

-The role and significance of prices in the market economy has to do with supply and demand. If there are the same amount of buyers as products, the price will settle. If there are more buyers than products, the price of the product will rise. And, if there are more products than buyers, the price of the product will decrease. This occurs until the supply of the product matches the demand of the product.

Where there is darkness there is ultimately light and the various homeownership opportunities under the current economy reflect this notion. Real estate prices

1. NORMATIVE ECONOMICS—REPUBLICANS VERSUS DEMOCRATS Visit both the Republicans’ www.rnc.org and the Democrats’ www.democrats.org Web sites. Both parties address Healthcare and both address Energy policy, for example. (Democrats under “Issues”, Republicans under “Our Party”.) Compare and contrast their views on two such issues. Generally speaking, how much of the disagreement is based on normative economics compared to positive economics? Give an example of loaded terminology from each site.

Housing starts for single family homes have been gradually recovering to an annual construction rate of 800K since the Great Recession, but they remain substantially below the 1.2 million peak level that prevailed during the previous expansion. Rising prices should seemingly encourage higher levels of homebuilding activity. The apparent lack of

Supply is also affected by the growth of a community over time. For example, a new city with 10,000 homes, expanding rapidly, will have low supply and therefore more expensive homes. An older city, however, with 50,000 homes and fewer and fewer new residents, will see

However, the rental rate also increases as the supply increases. Leasing all the apartments (which are 2,500), will drive the rental rate to $1,500. As the rental rate and the number of apartments supplied increases, the demand curve shifts downward. So, if the company increases the rental rate to $1,500 the demand for apartments will be lower. In order to reach equilibrium the company will have to lower the rental rate to $1,050. This is where the quantity demanded is equal with the quantity supplied.

… It may seem strange that the market price is higher when demand is low than when demand is high. Use supply and demand analysis to describe why this situation exists.

It seems hard to believe that over ten years have elapsed since the peak of the US housing market in the previous economic expansion. Residential construction as a percentage of real GDP reached a zenith of 6.2% in 2005 Q3. The ensuing contraction saw this share decline -60% to trough at 2.5% of GDP in 2010 Q3. The current economic expansion began in 2009 Q3, but the sheer magnitude of the collapse made it virtually impossible for any subsequent housing recovery to impart the same outsized contributions to headline GDP growth compared to the previous cycle. This has consequently played a significant role in restricting the ability of the economy to shift into a higher gear of growth during the current

fluctuating consumer demand and confidence; interest and unemployment rates; changes in sales conditions, including home prices, in the markets where we

One of the biggest lessons that could be learned through the mortgage meltdown recovery involves the ease at which a homebuyer could borrow money. Mortgage programs were available for almost anyone who was interested in purchasing a house – even if they legitimately were unable to afford it. Creative marketers continued to bend mortgage underwriting guidelines to increase volume and profit. Investors on Wall Street have voracious appetites for steady returns on investments and the mortgage securitization market was no exception. Business executives continued to make it easier to borrow money, thus increasing their returns as these income streams were bundled and sold again and again on the secondary market. No one noticed the volatility that was created by continuing down the path of easy money. As the market collapsed, there was no small correction to the rules and regulations that would save the inevitable implosion. Any and all remaining mortgage lenders made it virtually impossible to borrow money for several years. Without access to mortgage money, houses would cease to sell. The lesson that was learned in this situation was that the rules, regulations, and underwriting guidelines used to lend money had to

Different market decisions determine how an economy is run. There are several different factors that account for how markets make their decisions, which determines how they function. The theory of markets mostly depends on supply and demand. However, it is key to note that there is a difference in demand/supply and quantity demanded/supplied. A demand is how much the buyer plans to purchase at various markets prices and the quantity demanded is what the buyer actually purchases at a particular price. Supply is the producer or the seller’s plan of the amount the seller will make available at different market prices and the quantity supplied is the actual amount that the seller makes available at a particular market price. It is important to

Declining price attract people with the easy loan facilities of their banks. And banks are ready with very high risk loans. This excess supply of home inventory placed significant downward pressure on prices. As prices declined, more homeowners were at risk of default and foreclosure. According to the S&P/Case-Shiller price index, by November 2007, average U.S. housing prices had fallen approximately 8% from their Q2 2006 peak and by May 2008 they had fallen 18.4%. The price decline in December 2007 versus the year-ago period was 10.4% and for May 2008 it was 15.8%. Housing prices are expected to continue declining until this inventory of surplus homes (excess supply) is reduced to more typical levels.

When a product is in short supply and there is significant demand for the product, the price will increase (Colander, 2006). When the quantity of the product is greater than the demand, the price will decrease (Colander, 2006).

In 2009, the world economy was marked by a very small recovery following the world crisis, the inflation, a slowing economic growth, a high unemployment rate, and the shrinking of the foreign direct investments, not only in the US, Europe but in other developed countries as well. In 2009, the real estate market was in state of equilibration after the shock caused by the financial crisis and the explosion of the housing bulb, which were the consequence of a careless banking system, as in the USA, Spain, Ireland, …, the instability of the stock markets, and a recession that required the resort to state budgets. The evolution of the real estate activity remained below the levels established at the time before the financial crisis. In France, the fall of the new real estate stocks and the value of the old property stabilized. Conditions for access to credits were toughened. Foreign investments shrank by 20% compared to their level in 2008. In 2010, the housing market showed different tendencies, rising, falling or stagnating in some countries, or a continuous regression in others. In the USA, the housing market continued its fall (the fall of the prices, the rise of the number of the seized houses, and the decrease in the construction expenses). In Europe, Spain was the country which suffered most from the crisis, and no recovery was expected before 2012. However, in France and the UK, there was a slow recovery, shown by a rise in the