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Homebuilding: Economic Forecast & Indicators Essay

3907 words - 16 pages

The U. S. economy generally performed well for the first half of 2007 as measured by key economic indicators, such as: the gross domestic product, unemployment, consumer confidence and spending, retail sales, inflation, and personal income. The Gross Domestic Product has expanded about the same average rate as the second half of 2006; however the pace has been uneven. The housing activity declined further in the second quarter of 2007 in response to the continued softness in home sales and still elevated inventories of unsold new homes (Federal Reserve). Businesses added jobs at a rate of 2-1/4%, with unemployment remaining at 4-1/2 percent. Consumer confidence rebounded in August 2007 as ...view middle of the document...

Both indexes provide how consumers feel relative to current versus expected business conditions, current employment situation, and total family income.Consumer confidence rebounded in August rising to a five-month high at 112.6 as receding gasoline prices and a mostly solid employment climate made people feel better about the economy's prospects and their own financial situation (Aversa, 2007). Gasoline prices nationwide continued to ease in early August, falling to $2.84 a galloon according to the Energy Department (Energy, 2007). The improved attitudes come even with the enduring turmoil spell with Wall Street. Economist Richard Yamarone from Argus Research Corp states, "Consumers seem to be fairly upbeat, it looks like they are ignoring the warnings of Wall Street" (Aversa).Another gauge of consumer's confidence in the economy is his or her attitude and the comfort level in making major purchases. The United States Department of Labor, Bureau of Labor Statistics conducts a consumer expenditure survey that measures the spending habits of U.S. consumers and includes data on their expenditures, income, and characteristics (BLS, 2007). The Consumer Expenditure Report is compiled on an annual basis and the latest report published in February 2007 for consumer expenditures in 2005. The February 2007 report shows that the average consumer spent $46,409, on average in 2005, which is a 6.9-percent increase over the previous year (BLS).Today in the United States many homeowners are using their homes to pay off debts and cash out equity in their homes. When the housing market was on an increase this was a good idea. The problem is that now the housing market is not inflating and is, rather, at a stand still. Economists are seeing that trend come to an end due to the value of homes slipping. This spells trouble for the outlook they have for the housing market. Consumer spending forecasts look dim for the housing markets. Home owner's took advantage of the market a few years back, but are now seeing an increase in interest rates and not so good a return on the equity. One article said "There's a payment shock that some of these people are just being devastated with," said Marcell. "A payment that was $1,500 is now $2,500. And that's the impact that we're concerned with. A lot of these people were not told what could happen when the adjustment periods come about." (MSNBC, 2007) The housing market needs to find better ways to draw in new home buyers and consumer spending may start on a rise again. Overall the housing market shows little if any increase for future forecasts, mostly due to the inability to afford anything else. Another problem that needs to be addressed is the credit of individual home buyers facing these rising home loans. When they are no longer able to make a payment for their mortgage, foreclosures begin to happen and bills stop being paid. This leads to a negative credit score. A recommendation would be for new types of fixed rate...

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