A recent commercial aired by the Nation Association of Realtors prompted me to want to explore this article. The original article from the global news source Reuters, which Jack had chosen, provides an update of the current housing situation here in America (which looks pretty grim). Jack’s initial response to the article furthered my interest because he applied some things learned earlier in the semester to explain why the housing market collapsed the way it did.
The recent commercial aired by the Nation Association of Realtors advocates that housing sales creates jobs; for every two houses sold one job is created. Further more on their website, the National Association of Realtors argues that the housing industry is what pulled the United States out from six of the last eight recessions and at the end states “Jobs and homeownership. You can’t have one without the other.”
The housing market went into turmoil because of the faulty mortgages being handed out. The American dream after World War II was to own your own home. Mortgage brokers not only supported the dream to own your own home but helped place people in homes, which were beyond their means. Their crucial error began here when they started providing extremely risky mortgages to people who had little probability of being able to repay the mortgage. As mortgages failed, they were split into packages and derivatives and resold. As money available for investment became scarcer due to minimal returns on investment, investment supply could not satisfy investment demand. The housing market might have helped pull the country out of the recession six of the last eight times, but the housing market this time around helped pushed the country back into a recession.
As found by Okun’s law, as RGDP increases, unemployment decreases, which theoretically does support the idea that housing sales create jobs. The National Association of Realtors’ statement “Jobs and homeownership. You can’t have one without the other” brings fourth an interesting thought. There is by no means a shortage of housing; the issue is the inexistent demand for housing though there has been a significant decrease in price. Such a large decrease in price with minimal affect on demand indicates that people still do not have the money to purchase housing. The statement in discussion is really a two-way equation. The National Association of Realtors I believe implied that by buying housing, jobs will be created. This may not necessarily be false, but it appears as though jobs are first needed before home sales will improve. “I think recovery can be anticipated given affordability, though employment must improve.” –David Carter, Chief Investment Officer of Lenox Advisors. Further more, in theory, if banks were to support the National Associations of Realtors, they would once again be issuing loans to people who may not necessarily have the means of repaying them; exactly what landed the housing market in this mess in the first place.
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