Axia College of University of Phoenix
Economic Theory ECO/205
May 9, 2010
The home building market was hit hard as the recession came about. Due to sub prime mortgages and unfair lenders, so many homeowners could not afford their house payment so they fell behind, resulting in a wave of foreclosures all across the country. With foreclosures reaching a record high, many first-time homebuyers became discouraged and shied away from home purchasing.
With so many vacant houses on the market, homebuilders were starting to lose business. Who would feel comfortable about building a home during a time of recession? In an effort to keep business coming, homebuilders started to offer homebuyers incentives to build. Some of the incentives that builders started to offer their buyers included $20,000 in upgrades/discounts or closing costs, 5% off the purchase price, free washer, dryer or refrigerator. Homebuilders were able to attract buyers but the buyers were not able to get financing due to stricter lending criteria. Home builders started to realize that the housing slump may last longer than anticipated, so to prepare for this, they started to lay off 25-30% of their staff in order to keep operating costs low and hopefully wait out the slump.
As of October 2008, applications for building permits dropped 12%. In the Northeast, construction declined by 31% and dropped 13% in the Midwest. The West on the other hand, rose by 7.5% and 1.5% in the South. With a continuous rise in foreclosures and stricter lending practices, buyers were finding it harder and harder to qualify for a mortgage loan. Soon the industry of homebuilders started to ask Congress to create more incentives to get the hesitant homebuyers back into the market.
In 2008, the first time homebuyer tax credit was signed into law. This was done in hopes of boosting home sales. The tax credit only qualifies for primary residents, so vacation and investment property are... [continues]
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