This is a complete research on home building industries :)

Homebuilding is an industry that is always cyclical and depends on many factors. Businesses are affected by it if the industry is booming or falling, which in effects jobs, which will affect home sales. It becomes a circular feedback loop. The homebuilding sector can be concluded as elastic in terms of price elasticity. Not everyone can own a home, so others will then rent, causing the demand of homebuilding to drop and supply to increase. One of the biggest factors for the increased demand was the lax lending by banks when it came to buying the homes and building them. Banks were lending home builders a lot of money with light restrictions and regulations, which are in other words, became easy, cheap credit. This created speculators in the real estate market, where people bought multiple homes, not to live in but to sell for profit. Homebuilders became part of the boom, as they too tried to sell their own developments for profit. The demand was actually artificial because many of the homes were bought with the intention of them appreciating in value, and the only way that can happen is if easy credit was always available. Unfortunately, it is not the case now so the demand dropped significantly, causing mass selling of homes, and oversupply. Many speculators exited the business and many of whom got foreclosed on. Homebuilders as well have gone bankrupt for the majority, and will continue in the indefinite future to lose revenue. There are too many homes in America, and homebuilders will be in a losing proposition if they try to build, given tighter credit and lack of demand.

The homebuilding is greatly connected to other businesses. Homebuilding usually requires many services which can include: contractors, real estate brokers, lenders, lawyers, businesses that sell furniture, businesses that sell fixtures, and other businesses that are related to objects or things bought after a real estate property is purchased. These people are heavily impacted because this slow down in the overall real estate market will in effect create less jobs. Contractors will be in less demand as homes are not being renovated and/or built as much. Real estate brokers will be in less demand as many of them will not make any sales during this time of economic downturn. Lenders will be in a worse situation as they have non performing loans on their books, which will create the opposite effect of before, or in other words less credit, and higher rates. Lawyers in the real estate industry will be negatively affected if their business is just focused in that area. .Since there area less homeowners, it would only mean there are less sales for home owner related items such as furniture, fixtures, appliances, etc. This negatively affects businesses who sell these products.

Though there are many negative effects of the housing crisis, many will benefit. Landlords are seeing an increase of renters which is causing an increase of rental prices. This is obviously making those who invest for cash flow richer than before. There weren’t that many apartment buildings built, so the supply and demand factor is out of balance. Since many of these foreclosed homes need to be cleaned, the people who are in this business are seeing a huge increase of business income as the banks are paying them to clean out the debris residing in the homes. Banks are also hiring asset managers to manage many of the properties, which is giving lots of listings for top brokers. Though they may not be sold right away, it is guaranteed income for that broker when it does sell. Investors, who are in businesses of rental properties such as apartments, mobile homes, or even motels, are seeing their businesses skyrocket. Americans cannot afford to buy homes, so they are going back to rent. This creates opportunities for others.

There is a wage inequality in the homebuilding sector and is mainly due to immigrants. Many home builders hired immigrants and paid them low wages, which has created an inequality between those who are professionals and the immigrants who needed a job. The homebuilders would pay them “under the table,” which meant they were paid cash, and involved no tax paying. The housing industry was full of wage inequalities, because while some were actually paying the workers market rates for work, many were not. The competition of the housing sector became strong, as the homebuilders wanted more profits, thereby purposely making workers compete for jobs. Now that the housing boom as busted, it has created a glut of immigrant workers looking for a job, further suppressing the wages. The housing sector perpetrated a rebound in the general US economy, because US was already in a recession. People were finding jobs anywhere they can find, and the homebuilding sector created jobs, and people were very dependent on it. As people competed for the same jobs, the wages were decreasing in areas of where there was an oversupply of employment, one of which was homebuilding.

The monetary policies of the Fed and encouragement of the government caused excessive borrowing and in turn fueled the real estate market. Builders added more gasoline to this fire by building more homes on top of the oversupply of homes. Many of the people who bought these homes speculated that they would go up in price, which created an artificial demand since there was never an intention for people to live in it. These policies of easy borrowing only made people take risks. No money down mortgages and other fancy financial products allowed those to buy homes they can never really afford. The growth has now declined and the prices of homes are reflecting that. Prices are coming down hard and must correct to the point of equilibrium. Homes are only priced to the point of what a buyer can afford now.

Homebuilders will suffer as a consequence. This would only mean that homes they are trying to sell will have to decline in prices to at least to get rid of them and attract bargain hunters. However, given the monetary policies of cheap money, it has created inflation in many goods including materials. The materials to build the homes have increased in dollar amounts and ultimately hurt the bottom lines of home builders. It would not make sense to build homes now since the profit margin would be too low. Sooner or later the homebuilding especially in America will be very slow, as it costs less to buy an existing home for sale than to custom build the same one.

The economy is related to every business sector especially housing. People tend to save more and cautious about big purchases when recession looms. The US economy is in a recession and given the outlook of jobs, it will only create a bigger downturn of the homebuilding sector. The overall general economy will be worse as less money is spent especially big purchases such as homes. Banks are in control of the overall situation because they were the parties who lent the money to both the consumer and builder. Now that the banks are busted, it will create a ripple effect in all industries, especially to the consumers. Consumers will not purchase homes as they would rather rent and save their money.

References

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