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US Housing Market

I. Overview of the current US Housing Market. (Introduction of what the paper is about) The US housing market has always been regarded as a barometer or primary indicator where the country’s economy is and where it is going. Recently, it has been at the forefront of concern for both federal and state regulators because of the high incidence of foreclosures, especially in the sub prime market (Guha), the slowing down of new housing construction (Flood & Guha), and the drop in home sales for the first quarter of 2007 (Flood & Guha).

All these coupled with the rising gas prices drastically affected consumer spending for the same period (Callan). All of these have put a damper on the US economy as a whole (Callan), and even NY traders have felt the repercussion of the slowdown on the US housing market (Mackenzie). II. Overview of economic concepts and factors affecting the housing market (Scenarios of precious boom and bust; how is it different from the current housing trend)

What we now see seems a very mild repeat of what happened in the several periods of boom and bust before the latest one during the early1990s when the housing market bottomed up a few years after peaking. According to Ian Morris, “After inflation, house price declines occured in 1975, 1979-82 and 1989-94” (Swann, FT). However, what makes other market analysts and speculators remain upbeat is the fact that the same equation wasn’t present then and now.

Previously, the 1990s boom and bust have different factors and investment environment from what we have currently. During the 1990s, there was a lot of uncertainty with the prospects of a third world war with Saddam’s invasion of Kuwait and US intervention in the Middle East Conflict. Soon after though was a boom that saw housing prices rise and another bust after 1995. This recent housing boom that started soon after recovery efforts of the post 9/11 scenario in 2002 and peaked in 2005 (Clothier) and started its decline in middle of 2006.

There is an ongoing debate among market analysts if it has bottomed out yet, and it will stabilize in the next few months or if the worst is yet to come. Whatever the outcome, what is more significant to see right now is that despite the start of housing prices decline in some cities like Detroit, Michigan and previously red hot markets like Sarasota, Florida, there are other cities whose housing prices are still on the rise, however small like Manhattan, New York, and Southern California cities(Anderson).

Factors that lead to this variances in housing bust and continuing “mild boom” can be credited to the local economy of the cities and its surrounding areas (Anderson) and some aggravating circumstances in some cities like Detroit Michigan. Detroit was hardest hit by the closure and job cuts of car manufacturers General Motors Corporation, Ford Motor Company and DaimlerChrysler AG’s Chrysler (Valcourt, 2007) who have their manufacturing plants in Detroit.

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