Introducing
The housing industry / market is one of the largest industries/markets in the world. The size, housing industry/market, is so large that when the housing market bubble burst in 2007, the entire United States’ economy went into recession. The economic crisis was so enormous and potent that it was dubbed as Great Recession (implying that it is similar to The Great Depression of 1929).
After the 2007 economic crisis, the investment in housing market/industry dwindled, which reduced the size of market/industry. However, as the ramifications of the 2007 economic crisis started to disappear, the size of the housing market has increased evidently. The housing market is seemingly booming again with some of the metropolitan areas, 25% of the residents are unable to afford the purchasing of a home. Even in some parts, the housing prices have already break records. According to the statistics, the value of the stock about the housing market has swelled around 6.5%. In monetary terms, the value has swelled around $2 trillion (from the previous year). As per projections, now total homes in the United States worth $31.8 trillion; this is a cumulative figure of all the houses in the United States.
Growth in Historical Context
Scrutiny of literature and data reveals that investment in the housing industry and market declined abnormally after the bursting of real-estate/housing industry/market bubble. For around four years, investors were apprehensive regarding investing capital in the housing industry. Similarly, there were not many buyers of stocks about housing. However, in the year 2013, investors’ confidence, in the housing industry, started to recover, which pushed housing industry back into the early stages of recovery. Since then, the housing industry has grown at a good pace, which has also inflated the price of stocks on the housing market.
It is evident that housing industry and the market have recovered in phases, which suggests that overall economic conditions directly and positively affect housing industry and market. For instance, when the United States’ economy is in up-swing, it positively affects the housing industry and market; whereas when the pace of economic growth slows down, size of investment in housing industry and market also reduces. This positive correlation between economic growth and exceptional performance of the housing industry and the market is natural. It is because the house is a desired and preferred commodity in the United States, which is strongly affected by the boom.
Statistics also reveal that the growth of other assets, such as Bitcoin, is exponentially in comparison to Housing asset, which implies that the confidence of investors has not fully restored. Another explanation is that Housing assets are not more the most prized or desired assets. People are now investing in such assets, which are more stable and offer high dividends in short period. As for the bubble is concerned, there is not reality in the appearance of real estate bubble in US. However, there might be some small bubbles appearing in some parts. One might not use the work bubble for it. These areas are just showing the lack of affordability and a triple rise in its prices.
Significance of Growth
The growth of the housing market has significance for both American economy and housing sector. For instance, the investment in housing sector suggests that investors are of the view that risk associated with the housing market and industry has reduced in size. Therefore, they can invest in housing sector more boldly. Similarly, the investment in housing sector suggests that ramifications of Great Recession have mitigated to the extent that it no more adversely affect invest and consumption in the American economy. It is imperative to understand both investment and consumption have great significance for the United States’ economy. For instance, consumption is considered an engine of growth and it is positively affected by investment, which increases general employment level in the country (Lucking, 2018).
Clusters of Housing Market
From the study of the evidence, about the housing market, there are clusters of the housing market, which amalgamated to form housing industry of the United States. Also, some of the clusters are large and they perform better than the others. For instance, the most valuable housing market of United States is in Los Angeles, which monetary worth is of $2.7 trillion (Bloomberg, 2017).
The second largest housing market is in New York, which monetary worth is $2.6 trillion. We also learn that the monetary value of 10 most valuable housing markets is $11.3 trillion (33.6% of the total value), which is enormous. This statistic is also a concern, as the fluctuations in most valuable housing markets may cause challenges for the entire market.
It is also apparent that changes in major housing market clusters affect overall prices and value. For instance, if the real estate prices of New York would dwindle, it would have affected other major housing market clusters (ripple effect) (Bloomberg, 2017).
Apprehensions
According to projections, almost half of the housing market in the United States is overvalued. After 2007 the economic recession, government introduced several reforms 1) to address the contradictions of housing markets and 2) improve its efficiency. However, despite reforms, the value of the housing markets has inflated. For instance, after the 2007 economic crisis, the banking system was tightened up, and the secondary housing market was emphasized. Also, the entire process of acquiring an entry-level home bifurcated (Owusu, 2018). Bubbles appear when the market is getting away from the fundamental needs, it means that the demand outstrips the supply and this demand can disappear easily as well.
Some of the economists are of the view that the size of investment has not increased much, in the housing sector because of a difficult process to invest in the housing sector, which has created shortage entry-level homes.
However, the Trump Administration has introduced various tax-related reforms, which will expand the supply of homes that will increase the size of the housing market. This development may yield economic complications because more investment in the overvalued housing market may create a bubble. (Smith, 2018)
Conclusion
In the end, it is apparent from the study housing market is one of the largest markets in the US, which strongly influences its GDP. After the economic recession of 2007, size of housing market, reduced; however, it is recovering, and some of the clusters of the housing market are growing at an exceptional pace. However, the exceptional recovery and growth of the housing market have made few economists apprehensive as most of the homes in the US are overvalued.
References
Bloomberg. (2017, December 28). 2017 Was a Robust Year for the U.S. Housing Market, Zillow Says. Retrieved from http://fortune.com/2017/12/28/house-value-gain-zillow/
Lucking, L. (2018, March 1). U.S. Housing Prices Return to Peak Levels. Retrieved from https://www.mansionglobal.com/articles/90201-u-s-housing-prices-return-to-peak-levels
Owusu, T. (2018, February 20). New Tax Laws Make Experts Nervous About State of U.S. Housing Market. Retrieved from https://www.thestreet.com/story/14493418/1/new-tax-laws-make-experts-nervous-about-state-of-u-s-housing-market.html
Smith, S. V. (2018, May 11). Rising Home Prices Lead To Worries Of Another Housing Market Bubble. Retrieved from https://www.npr.org/2018/05/11/610315734/rising-home-prices-lead-to-worries-of-another-housing-market-bubble
Appendix
United States House Prices
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