Ecomony Impact on Housing

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Date Submitted: 03/12/2011 05:24 PM

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Running head: The Housing Industry

The Economic Impact on the Housing Industry

The Economic Impact on the Housing Industry

Since the beginning of the century, the housing industry has seen spectacular growth. The prices of houses had a growth of 45%, since 1995. The 1.4 million in growth a year was accelerated by the speculative buying, low interest rates, and the innovative mortgage practices. In 2000 the housing industry was the backbone of the economy. The boom in construction of new homes created jobs. Two fifths of the jobs created since 2001 were in real estate lending and brokerages. The growth phase of 2003 which spurned the economy was due to the jobs created by the housing boom and by home prices, which lead to an increase in consumer spending. Not only were consumers purchasing homes but were also taking out large home equity loans.

In 2006, the increase in interest rates along with the gas price caused the started the decline in the housing industry in the fourth quarter. The housing growth of +20% fell to -20% in a matter of six quarters. The start of this decline in the housing industry lend to a drop in the Gross Domestic Product (GDP) due to homeowners curbing their spending. Key factors of the economy that impacted the housing industry were

• Interest rates being low since 2001 lead to the growth in the housing sector, which allowed consumers to afford houses at a lower cost.

• The housing industry had a significant effect on the GDP. The decline in the housing industry and the GDP was caused by the increasing rates, which started the decline in the home sales and lead to home prices starting to decline.

The dramatic expansion of the housing industry for the last decade combined with the interest rates and the inventory of unsold homes resulted in a soft housing market.

In the fiscal year (FY) 2007, the housing industry slowdown caused the economic growth to decline. The start of this decline was due...