Home Building Industry

Topics: Supply and demand, Construction, Externality Pages: 3 (1047 words) Published: January 25, 2009
Home Building Industry
How does the home building industry affected by the economy? This is what we will be exploring in the paper. There are different areas within the industry that can be affected. First we will look at supply and demand. Then continue to the positive and negative externalities, and how wages inequality is measured. Then finally, we will look at the monetary and fiscal policies that affect the housing industry. With the information we will have a better understanding of how the home building industry is affected.

When looking at prices within an industry, we need to first look at the supply and demand. For home builders this market has been fluctuating for awhile. The gross domestic product (GDP) is one of the primary indicators that show how the economy is doing. For the home building industry in the final quarter of 2007 the Residential Fixed Investment was at 24%, which is more than a percentage point from the GDP growth rate (Seiders, 2008). Some of the factors of the lower rate is due to mortgage lending’s negative economic impact. Furthermore the subprime mortgages that were given over the years are still affecting the financial market today (Cooper, 2008). The demand for new homes has declined in recent months (Gopal, 2007). With these factors there is more houses then buyers at this time. So because of the lower demand for houses the need for the supply of new houses has decreased. The home builders want to get rid of the supply of house they have been for building more (Schoen, 2007). This is shown by the decrease in building permits (Gopal, 2007). The building permits are an indicator of future home building.

Next we look at the externalities of the home building industry. There are many activities that can influence the area that the houses are being built. The land around the home and the neighbors around can be positive or negative. A positive externality would be if there is a home owners association that monitors the area...
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