Savings affect or influence investment. People make two important decisions out of their disposable incomes. They choose to consume or save. If the consumption levels are very high they affect the amount to be saved and consequently influences investment. Capital spending influences investment. The US housing market is a key indicator in the major stock markets. High housing prices mean that individuals in question are left with fewer finances to cater for other needs.
Major mortgage lenders are closing down for instance Ameriques was forced to lay off many of its employees and closed down due to reduced activity. (www. readingeagle. com) To curb the recession and its impact the US can increase its exports through exploiting the solid links with its partners. Trade is also an important factor in ensuring economic growth. High rates of unsold mortgage could lead to delinquencies, which is not good for the economy.
Around 2001, the US experienced the economic or speculative bubble. Then, prices were high as fewer houses were constructed. As more and more houses were built the prices fell. Falling prices reached a level that people had to shy away from the housing industry, as the prices did not match the value. Many homes are empty with for sale signs and if one has not lost a job at least they know someone who has. Energy prices have risen and this cost has been transferred to individuals.
Food prices have also risen and people cannot afford things that they previously did. Others have been forced to move out of their homes, assets that they value, as they cannot afford the monthly payments. (www. readingeagle. com) This has been aggravated by the fall of housing and mortgage markets. Inability to easily acquire credit has also been a factor hindering the housing industry from thriving. Would be buyers lack the financial power and thus are unable to purchase the houses.
Jeannine Aversa. 2008. Many Believe US Is Already in Recession. The Associated Press. Retrieved on 13th February 2008 from http://www.readingeagle.com/article.aspx?id=79780
Kose A, Otrok C, and Whiteman C. 2003. International Business Cycles: World, Region, and Country-Specific Factors American Economic Review, Vol. 93, pp. 1216–39