Home Building Industry in the United States Essay

Home Building Industry in the United States - Essay Example Housing is globally recognized as productive sector of the economy rather than a form of welfare, because "housing and economic development are closely linked" and it acts as an instrument to improve the GDP. (Housing for Economic Development, 2005). Because a healthy housing stock provides safety for employees, taxes for state and local governments, and more customers for retail and service business, house building industry helps state and regional economy to flourish. Every individual aspire to own individual dwelling unit and buying a home is a major life event. Major life events such as marriage, birth of a child, changes in employment, or retirement particularly influence the decision to purchase a house though mortgage rates, income and expected returns on investment also motivate their decision to invest in residential property. Young adults in the population constitute primary source for home buying and when there is upward trend to housing prices these first-time buyers will be more attracted to enter into homeownership under the notion that rising prices will make future purchases unaffordable. Housing is an important basic need and focus of social concern and should be viewed as one of the key elements of social policy. Some of the U.S markets may not have sufficient housing supply to accommodate the influx of new residents, while the state and local governments may lack the resources to provide supportive services. The ability of Americ a's working immigrant families to obtain decent and affordable housing has implications for the social and economic well-being of the United States. Studies found that there is a direct proportionality between housing price and homeownership, establishing that "housing market's volatility is amplified by buyers' responses to the trends in market fundamentals." (Myers & Ryu, 2008, P.17-33). Housing market provides "mechanism for equity growth, liquidity and financial flexibility for individual households, while also providing relatively safe, productive investments for institutions through secondary mortgage markets." (Housing for Economic Development, 2005). "Housing shortages have historically gone hand-in-hand with rising housing prices and rents, higher housing cost burden, lower homeownership rates, increased crowding, and longer commutes." (Landis, 2000). It is admitted that State's economy is one of the chief determinants of producing more housing units, because when the economy goes into recession housing demand falls quickly and deeply. "Economic recovery revitalizes the housing market, though expansionary peaks rarely even out the recessionary troughs." (Landis, 2000) According to Professor Michael E. Porter of Harvard Business School, "the only reliable test of economic value is sustained profitability, measured by superiority in long-term return on investment" and "industry structure is a key driver of homebuilder profitability". However, he asserts that "market assessments of homebuilding stocks appear to be out of line with other industries that have similar structural characteristics." (Porter, 2003). "The conduct of monetary policy by the Federal Reserve has profound impacts on the housing sector and its contribution to the overall economy" as reducing inflationary