Residential Housing Essay

KB space, one of the major trapping companies in the grocery do a statement telling the public that they do not see accommodate sector to stabilize by this year. emergence of caparison companies has been acquiring great losings by the end of 2005 as disposable income of consumers declines as the consequence of woefulering down of per capita income in the economy. agree to the President and Chief Executive Officer of KB Home, Jeffrey Mezger, they have suffered to a staggering loss of nearly $10 per share during the first one-fourth of 2007 (Steverman 1).            Deutsche Banks economists, Peter Hopper, give tongue to that the lodging correction whole caboodle sluggishly just like a s low-motion train wreck which made worse the housing sector of the economy. Moreover, the said loss of KB Home worse than what they have expected. Analysts expects around $7 loss per share which is very(prenominal) far from the $10 per share loss accounted last dope. Therefore, with the raise declension of the rake prices in the inventory grocery store, this however means that in that location bequeath be no improvement in the coming first ass of 2008.            To make the situation worse, there has been a rumor in the market regarding the bankruptcy of countrywide which supplies loans and mortgages worth 2 one million million and 9 million respectively. Countrywide suffered from 25 percent losses as of January 8 of this year. Meaning, there would be a shortage on the supply of loan and mortgages in the financial market just in case Countrywide is unfeignedly approaching to bankruptcy.Moreover, the shortage of supply of loans and mortgages in the economy allow for only worsen the purchasing power of the consumers, giving way for a further deterioration of demand to housing industry.            One possible reason john the turmoil in the housing industry would be the flood of homes in the market creating a pressure for its prices to decline. By the time price aim of housing units starts to decline, profitability of housing companies begins to deterio set out giving way for experiencing a low reach on investment in the next quarter. operate by speculation, investors allow for start to pull out their stocks in the housing sector causing stock prices to turn down. In this regard, the connection between the oversupply of housing unit in the market with the deterioration of stock prices is already established. Moreover, it is not only the oversupply of housing units in the market that caused the instability of the housing sector. The growing competition also adds up to the growth of the problem.At the end of the day, market analysts still believes that housing sector will not recover this year based from the current degree of losses that housing companies and financial institutions had experienced o n the last quarter of 2007. epitome            It is true that the turmoil in the housing sector started during the last quarter of 2005 when consumers have high disposable income. During then, consumers spent more in the housing market attracting the housing companies to produce more house units next quarter. By the start of the first quarter of 2006, per capita income of consumers starts to decline giving them a particular(a) disposable income for housing sector. At this point, the housing industry experienced oversupply of housing units since companies did not anticipate the deterioration of consumers disposable income.The said oversupply caused the price level of the housing companies to decline causing the return on investment to depreciate which later on forced stock holder to withdraw their stocks in the market. The increasing competition in the housing sector also add up to the lowering down of housing unit prices since companies in this industry starts to compete each other through with(predicate) price competition. Meaning, housing companies tries to lower down the prices of their home units in assure to attract more customers.            The negative effects of eh oversupply of housing units will not be that severe if there is only adequate derive of financial institutions that will provide loans and mortgages to uplift the purchasing power of the consumers, therefore, amend the demand on the housing industry. But the problem immediately would be, tied(p) financial lenders is also having a hard time providing loans and mortgages due to the low income level of consumers in the market which imposes the threat of bankruptcy  to the financial lenders.            It would be best if the government would start making action by fling low interest rate on credit. The federal bank must structuralize a special credit scheme for housing sector customers, e.g. low interest rate on borrowing or longer requital period, in order to cream the problem of over supply on the said industry.            Another way by which the government could solve this instability of housing sector would be to provide financial aids to Countrywide which, as what have already pointed out during the first part of the paper, plays a major role in uplifting the purchasing power of consumers though provision of loans and mortgages that can be used in purchasing housing units. The said government aid may be in the reverberate of monetary of fiscalMoreover, the government could also increase the wage rate of the workers in the economy in order to improve the current level of disposable incomes of consumers in the market. By the time the disposable income of consumers increase, they will now have enough money to purchase housing units which will solve the problem regarding the overs upply of home units.Works CitedSteverman, Ben Housing A bright Jolt of Bad News. 8 January 2008. Business Week. 11 February 2008 <http//www.businessweek.com/investor/content/jan2008/pi2008018_503594.htm?chan= appear>.