US housing market and its impact on the US economy has given rise to serious speculations and vigorous analysis in the last few years. It is expected to have serious effects on the country's economy. During 2001, a widespread gradual decrease in the GDP (Gross Domestic Product), employment and trade buoyed the U.S. economy and the housing market.
Market report
During the period between late summer of 2005 and summer of 2006, the flourishing U.S. housing market blocked suddenly and eventually the markets started facing effects like falling prices and reduction of sales volumes.
The growing interest rates and home prices directly influence the housing market in U.S.
A report from Barron's magazine reveals that the median price of new homes has dropped about 3% since January, 2006. The existing home inventories were 39% higher than they were one year ago and the sales were down by more than 10 percent. It was also predicted that the national median price of housing will probably fall by about 30% in the coming years.
The chief economist of NAR( National Association of Realtors), David Lereah predicts that the home prices would reduce by 5% nationally. The NAR also reported that National home sales and prices both dropped dramatically again in March 2007. In March 2006, the sales dropped by 13% to 482,000 from the peak of 554,000 and in July 2006, the national median price dropped about 6% to $217,000 from the peak of $230,200 .
The impact
Since 1989, the existing home sales in U.S. dropped abruptly and consequently the home market started suffering. According to a report by Commerce Department, the median prices for newly built homes in U.S. dropped by 10.9 percent.
A slowdown in US housing market impels the World Bank to lower the global economic growth rate. A worsening of the U.S. housing market could negatively affect the consumer confidence and at the same time will worsen the U.S. Economy and the economy of the rest of the world. As a consequence, the unemployment levels expected to stay low in the coming years.
The Congressional Budget Office estimates an unemployment rate by 5.0% between 2006 and 2007 and between 2008 and 2011, the average annual unemployment rate will be 5.2 percent. Low confidence levels could affect the consumer spending in an adverse manner and at the same time could negatively affect the residential construction.
Expert's comments
The prominent economist and the 2001 Nobel Prize winner, Joseph Stiglitz expressed that the U.S. may enter a recession due to the decline of house prices.