Online financial news
There is a fundamental economic formula that market analysts go by – that is the law of supply and demand. In the US housing market, there are a lot of variables to consider not only because of the size of the physical landscape but also because of the economic landscape of the four main regions – Northeast, Midwest, South and West. Moreover, even within the regional physical and economic landscape, state and county socio-economic and political dynamics play a big role in the health and causal national effects of these economies. Again, an example in this case is Detroit, Michigan.
When the big three (3) car manufacturers cut jobs and slowed down production of its biggest plants in Detroit, and the entire manufacturing industry which for (4) generations propelled the economy of Detroit was almost at a standstill by 2004 (Freeman, 2004). These three car manufacturers, the steel industry and other manufacturing plants practically kept the economy of Detroit strong and vibrant during its growth years. Now, its decline has caused the collapse of Detroit. With most of it former workers moving out of state and the housing demand is almost non-existent; prices have bottomed out at almost 500% (Freeman, 2004).
And still, nobody is buying. As plentiful as the supply is, if there are no takers, then there is no demand. Fast-forward 2007: Home sales have slowed down. Home sales have declined the first months of this year compared to the last two years. To quote: Federal Reserve Chairman Ben S. Bernanke said, “Today’s U. S. economic figures, including a 16. 6 percent decline in January (2007) new-home purchases, were in line with his estimates. ” (Clothier, Bloomberg). Also: “Americans bought far fewer newly built homes than expected last month in a worrying sign for the economy, government figures showed yesterday….
Sales of new homes fell 3. 9 per cent to an annual rate of 848,000 in February, while purchases in January were also sharply lower than previously thought” (Callan). The question is what does a slowdown in home buying mean in a bigger context? The picture is sharply defined by Chris Flood in his article entitled “Growth Data to indicate slowdown trend or blip”. And I quote: “US GDP first-quarter data, due on Friday, are expected to show growth weakening from 2. 5 per cent (annualized) in the fourth quarter to 1.
7 per cent, with the slowdown in the housing market dragging residential investment spending sharply lower. Business investment is also likely to fall for a second consecutive quarter following weakness in core durable goods orders, down 1. 9 per cent year on year in February. .. US consumer confidence for April is expected to fall from 107. 2 to 105. 0, partly as a result of higher petrol prices” (Flood, 2007). The article says it all. One economic event factors in and rolls on to the next. The cycle is started and goes on until something triggers another boom.
Meanwhile, the slowdown in the housing market should have been expected when the housing boom peaked in 2005. It is but logical that anything that ahs peaked would come down and it’s only a matter of when and how much it would affect the US economy as a whole. For now, since demand is so low, and supply of new houses and inventories of recently available “old” houses are high or more than ample, it should be a buyer’s market. However, housing prices in some areas are stagnant and some areas are experiencing a very slow reduction in prices.
This is because homeowners and investors who want to sell are stubbornly holding on to keep market prices at current rates; Buyers who are not biting yet are cautious because of the media hype on the housing bust. If inventories of houses on the market remain high, economic activity on the housing industry will slow down as well. Clothier stated the facts in his article in the online financial news Bloomberg. com: “New construction on single-family homes will fall to 1. 16 million this year, the lowest since 1997, the National Association of Home Builders has said. That will rise in 2008 to 1. 23 million, the builders said (Clothier, 2007)”.