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Economic Effects On Home Building

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Economic Effects on Home Building

Home building has been around for thousands of years and has evolved into a large market for both those seeking income as well as those looking for a safe place for their families. This market is always directly affected by the surrounding markets around them including average income increases or decreases, decreased annual spending as well as mortgage interest rate changes. The trick to the homebuilding market is to make home building a lucrative opportunity no matter what the situation however, this is not as easy as it sounds when including all the external factors including the inelasticity of the demand curve, externalities, wage differences as well as the policies which may hinder or help the home building process through wither good or bad times in the market.

Shifts and Price Elasticity of Supply and Demand

On a weekly basis, the cost of building a home increases and decreases depending on how the market is at that point. This process involves the cost of production of the goods as well as the demand for home building. According to an article in the Mississippi Business Journal written by Becky Gillette, the home building market's price elasticity of supply is determined by both the interest rate as well as the current demand for housing in the given price range. In a nutshell, if the mortgage interest rates dropped, the demand would then increase in home build which in turn would wither increase or decrease the supply of the home building products. (Gillette, 2003)

Determining why interests rates could in turn help understand the reasons why the demand curve shifts as well as the interest rates. Interest rates shift when something in a common good market has some sort of a change in their own supply, demand or pricing. For instance, when something such as a spark in inability to pay on mortgages occurs in the market, there is a large chance that quite possibly the interest rates may fall due to the attempt to rebuilding consumer home ownership. An increase in mortgage rates would be due to a possible shortage of building materials etc to inevitably slow down the building of houses until materials came to a normal number.

Positive and Negative Externalities

Externalities are one of the most influential pieces of how the home building can be either successful or unsuccessful. Externalities are external forces that shape and shift the market it has common uses in. In the home building market, for instance, interest rates are a common externality which could either become a positive or negative factor in home building. If the interest rate were to decrease, the demand for home building would increase therefore increasing jobs in the home building market as well as income in the market. If the interest rate were to decrease, however, the demand of home building would, in turn, decrease therefore creating a less lucrative market in home building and therefore a loss of jobs, income etc may occur during this time. Another externality for the housing market is the building of the home itself. Basically, according to an interesting article on the direct impact home building makes on the U.S. economy found in the National Association of Home Builders, building one single family house adds approximately three jobs to the market, and increases financial revenue for the federal Government by $80,000 per year.

Along with positive externalities come negative external forces in the market. Some of these negative externalities include natural disasters which can be debated as increasing build although will increase the cost of homebuilding nationwide. Also, new mortgage promotions can become a definite negative externality which has been proven recently with adjustable rate mortgages and the foreclosure increase which, in turn, reduces home building due to the decreased amount of homebuyers in the market.

Wage Inequality

From State to State, wages fluctuate depending on how well the local market is doing as a separate entity. Basically, as a whole, the U.S. is known as a national economy. When a country's economy is broken down, state even city, and town economies can be noticed. Each state economy includes average wages in all type of markets which are created by the basic need for that market and the actual revenue that can be potentially produced in that given market. The inequality of wages creates housing markets in some locations almost unreachable in that same market for those who do the same job but do not get paid as much. Basically, if someone is nursing at another location and getting $80,000 per year while another nurse performing the same tasks is only getting paid $40,000 per year in the same area, some with the same job title and the same monetary and living expectations is getting the short end of the deal because those with the higher wage jobs creates a higher cost housing market when purchasing homes those who get paid under them are used to living in. (Lawrence, 2001) Wage inequalities have also created a large problem in the real estate and home building market. The fact that several people are not making as much as others in their field of business, lenders have sought new ways to attract consumers with far less that glorious credit scores and lending pasts with the ability to purchase houses outside of their normal lending ranges in turn creating an unstable market with an increase of country-wide foreclosures. This has in turn created a larger than normal amount of national bankruptcies not only in the consumer but in the mortgage lending companies.

Monetary and Fiscal Policies

Another factor in the home building is, of course, the monetary and fiscal policies that are created specifically for the market. Fiscal and monetary



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