Effects of the housing bubble on the US economy
Spanning a period of over three decades there has been an unprecedented rise in the average price of housing globally. Much of the price hike experienced has undergone intermittent cooling effects; however, the cooling effect has not been significant enough to offset the destabilizing effects on the housing market. Of particular concern to stakeholders and policy experts in the real estate industry is the manner in which the pricing effect has defied the conventional business cycle principle.
Therefore, in this paper the thrust of my analysis starts on the premise that it is common practice to hold real estate troubles responsible for any economic recession. Right from almost all the major urban areas in the US office vacancy rates are pegged at 20 percent and above. The immediate effects of these tragic developments have being s significant cut in lending due to the threat of failure and bankruptcy brought about by huge losses on real estate loans contracted within this period of uncertainty. Put together, these factors are not helping the crisis in the industry just in the same way they are not facilitating the drive towards recovery.
To this end, the essay looks at the flood of commercial real estate space developed coupled with the rippling effects this phenomenon has had on the banking and financial institutions. A major point highlighted in this paper is that in the absolute form the commercial real estate industry is subject to cyclical forces and influences, with the current situation serving as a case in point.
As the paper advances, it will become evident that the greatest losers or victims of the falling values of real estate are the financial and banking sector. These institutions have being at the forefront of advancing credit to borrowers who maintained tangible assets in the form of real estates.
Notwithstanding these seemingly limiting factors, the paper is able to make very useful inferential analysis of the trend with the aid of qualitative and quantitative instruments to settle at a definite point. Central to the paper is usage of apt econometric models augmented by a simple linear regression model to bring to fore the reconciling grounds between the role of inflation, unemployment, interest rates and a host of other variables to reach a resounding conclusion of how each of these independently have contributed either covertly or overtly to the current bubble in the commercial housing industry in the US.
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