Real Estate Market Role in Macroeconomics

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Real Estate Market Role in Macroeconomics

Brief summary of article

Global downturn aftershocks are to blame for the economic situation in the USA as far as economic growth and employment is concerned. The shocks have culminated into higher unemployment rates for a long period. The government is proposing the use of fiscal policies to create employment to those individuals who are jobless. Unemployment is a situation where individuals who are able and to work have no jobs.

Unemployment by the writer stands at 9.1%, this is a large figure and several factors are to blame. Some of the factors advanced in the article that have consequently delayed the economic recovery are the Japan earthquake and the recent effects of debt ceiling. Moreover, reduction of exports and real estate hiccups are to blame for the soaring unemployment figures being realized.

Explanation of how the article relates to real estate market analysis concept

Real estate markets are usually affected by several factors, and in accordance to the article, employment changes are a core factor. Given the government succeeds in its initiative to cut taxes and create job opportunities, the unemployment figures will relatively decrease. Several companies will open their employment doors to a number of citizens who are seeking jobs. There will be a boost in these persons disposable income.

Although these persons will reserve some amount in the form of savings, large parts of their income are channeled to other necessities, which do not have to be their basic needs. Some of these necessities include housing needs. When individuals welfare improves, they will tend to demand for better houses and hence the increase in real estate market. On the other hand, with the rapid absorption of work force by firms, more houses will be required to accommodate the added employees. This will relatively call for pumping of resources to the real estate by firms. This not only will revamp the crippling sector, it will also increase their prices.

Government intention to cushion the middle class by cutting down taxes is another factor that is clearly showcased in the article. The reason why the federal government is employing this public policy tact is to boost the disposable income of the middle class population. Because of this policy, the individuals will be left with a lot of money at their disposal. With-improved welfare, population will relatively increase, and with increase in population will be the need for extra houses.

The middle class will tend to relocate to a prime location in line with improved welfare. This together with the increased demand by the increasing population will improve the real estate market. With increased pool of workforce, firms are able to continually bargain down the wages and salaries of their employees. Firms cost of inputs will tend to reduce in the long run; this reduction in cost will encourage firms to produce more for both domestic and international markets. This will force firms to open new branches to accommodate increased demand for their products. This will in turn increase the demand of housing to accommodate the new offices being established to increase production. With these demand for product induced firm space, real estate market will consequently increase.

Analysis of impact you believe the factor will have on real estate demand, supply and equilibrium in the relevant market

The government budget deficit according to the article stands at 1.3 trillion US dollars. Given the government initiatives succeed, the economy will thrive in most aspects. The unemployed will secure employment while the middle class will have additional disposable income to improve their livelihood through the acquisition of new housing. Individual demand for housing together with firms demand for new infrastructure in terms of office space will expand the real estate market.

The short run effects of public policy change will be the immediate increase in the demand for better housing. In addition, the creation of employment by the government will lead to increased population, which will then demand more houses in the long run. Although firms and individuals demand will increase due to employment and policy changes, the erection of new houses will take a long period. Effects of these government initiatives therefore will be realized and enjoyed in the long run.

Given an increase in population, the demand for residential houses will increase; this will trigger their supply and subsequent increase in price of real estate. With the rapid demand for houses, equilibrium price will increase and subsequently shifting the equilibrium to the right. However when real estate is experiencing high demand, several estate players will be attracted to the market. This will increase the supply of housing units and hence reducing the equilibrium price in the long run.

Considering the government-formulated initiatives not implemented, the economy is bound to contract. The unemployment pool will continue to increase; this will have negative effects to the real estate market, as individuals disposable will be fixed to initial figures. With less demand for houses, the real estate players will be few; this will drive down the equilibrium price. It is therefore prudent for the government together with the opposition to adopt policies that will grow market confidence and encourage economic players.

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