Essay Assignment ECO 502 SQ 2024

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School

Capella University *

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504

Subject

Economics

Date

May 23, 2024

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docx

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Uploaded by ARMicke

Currently, the housing market can vary depending on location, but globally it has been impacted by factors such as the Covid-19 Pandemic, economic conditions and lastly changing in buyers’ preference. It is important to understand how macroeconomic conditions can affect the housing market, with influences like interest rate changes, employment rates, inflation, demographic trends, government regulation, economic growth, and various other factors. Considering the present macroeconomic landscape, we should consider the following: (1) the potential implementation of fiscal and monetary policies to address prevailing macroeconomic challenges, (2) the potential impacts of macroeconomic conditions and projected policies on consumer behavior, labor force, production costs and (3) what strategic recommendations can be provided to housing market businesses to take advantage of the ongoing economic situation. As we explore the potential solutions to the current macroeconomic challenges facing housing, both fiscal and monetary policies can play crucial roles. For instance, fiscal policies could include introducing tax benefits, where the government could incentivize home buyers, developers and or investors with tax cuts or credits. Allowing these incentives could stimulate the market activity and reduce excessive housing inventory. Governments could also subsidize developers to construct affordable housing for low-income individuals or families to expand access to housing and promoting inclusivity. These approaches could potentially address the current macroeconomic challenges, increase activity, and positively impact GDP. A stagnant or declining housing market negatively impact GDP, leading to reduced construction, property value decline and decline in economic growth. The other policy, monetary; mainly influences the amount of money and credit, could be another strategy to address these challenges. Suggestions include adjusting interest rates, reforming mortgage policies and revising lending standards. Central banks could influence borrowing costs for prospective home buyers or property developers by manipulating interest rates. Lower rates can increase demand, while higher ones could cool an oversaturated market. Mortgage conditions, such as altering down payments, interest rates, or credit requirements could also be altered by central banks. Lastly, regulating the banking system lending standards could directly influence the availability of mortgage loans, thus affecting the housing market. Given a choice between kind of policy would most benefit the housing market, my choice would be a blend of both fiscal and monetary. While fiscal policy can influence economic behavior, monetary policy can regulate the money supply and cost of credit.

Housing market predictions should consider various macroeconomic factors and expected policies, which affect aspects like consumer behaviors, labor force, production costs, supply chain, financial conditions, technological advancements, and profitability within the relevant industry. Among these, consumer behavior and labor force issues are the most impactful. For instance, periods of economic growth or recession can swing consumer behavior in the housing market. Positive economic conditions boost consumer confidence, potentially increasing housing demand, while recessions dampen confidence and reduce housing demand. Additionally, labor availability and cost are pivotal in the housing market - factors like low employment or wage inflation can increase construction costs. A higher employment rate often equates to more potential homeowners, given the improved job security and steady income. There are several recommendations that I believe could better equip housing market businesses to deal with the prevailing economic conditions. The first would be for financial institutions to offer more flexible financing options and ensure that any hidden charges are clear and reasonable. Amidst tough economic conditions, potential homeowners might struggle to secure loans. Forging more partnerships between investors, developers, and financial institutions may unlock more accessible financing options, like rent-to-own schemes, longer mortgage terms, lower closing costs, and reduced interest rates. Many people who cannot secure mortgage loans due to their debt-to-income ratios, yet their rent payments might even exceed potential mortgage repayments. Rent-to-own communities might be an effective solution to improve homeownership access. Another strategy would be for housing providers to invest more in community amenities and sustainability. With a post-pandemic focus on health and community, properties that offer environmentally friendly features and community services - like shared workspaces, electric car charging stations, gyms, and eco-friendly pet cleanup stations - could see increased demand. Not only can these features increase property value, but they also foster a sense of community. In sum, the housing market is currently grappling with several challenges brought on by the macroeconomic climate. High rates are preventing individuals from investing in homes, foreclosures are on the rise and low inventory is indirectly impacting employment opportunities within the real estate industry. However, by implementing even just one of the mentioned recommendations above, there is potential to initiate a positive shift and improvement in the housing market.

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