Home Building Industry Research
Boom or bust; residential construction has strong ties to the cyclical housing market which is influenced by the overall state of the economy. Because the home building industry is directly tied to the housing market and the housing market is directly affected by the state of the economy, positive or negative shifts in the economy will influence the home building industry. In addition, policies passed by the government can aid in determining the direction of the shift in the home building industry
Shifts and price elasticity of supply and demand
The birth of the homebuilding industry began when human beings achieved the skills to build hardened shelters, to provide comfort and protection for themselves as well as their families. Humanity devised a way to make an absolute necessity become absolutely profitable. When the first home was built for profit, no one could predict that having the ability to build a home would be so intricately tied to the economy. After all, homes are a necessity and, for this reason the price elasticity of demand for the home building industry is currently inelastic.
History and time has shown that the need for homes will always exist. During times when the economy is thriving the demand for homes will shift to the right because consumer confidence has increased. In 2001, the terrorist attack on September 11th significantly heightened uncertainty in the economy and caused a consumer confidence crisis (CNN Money, 2001). This caused the Federal Reserve to lower interest rates even further than the existing rate to make money more available to consumers. Increased consumers confidence and lower interest rates caused the home building industry to flourish due to the increased demand for new homes.
The economy is in crisis, and many believe one of the chief reasons for the crisis is due to massive defaults on subprime loans, adjustable mortgage rates, and slow down in home buying (Roney, 2007). During this...