Residential Housing Essay Example for Free

Residential lodging EssayKB Home, oneness of the major lodgment companies in the market made a statement telling the public that they do not see caparison arena to stabilize by this year. Number of hold companies has been acquiring long waiveres by the end of 2005 as disposable income of consumers declines as the consequence of lowering down of per capita income in the economy. According 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 quarter of 2007 (Steverman 1). Deutsche Banks economists, Peter Hopper, said that the lodgement correction works sluggishly just like a slow-motion train wreck which made worsened the lodgment 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 far from the $10 per share loss accounted work quarter. Therefore, with the further impairment of the seam prices in the stock market, this entirely means that there testament be no gain in the coming first quarter 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 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 cater of loan and mortgages in the financial market just in case Countrywide is really sexual climax to bankruptcy.Moreover, the shortage of supply of loans and mortgages in the economy pass on only worsen the purchasing power of the consumers, heavy(p) instruction for a further deterioration of penury to housing industry. One possible reason dirty dog the turmoil in the housing industry would be the oversupply of homes in the market creating a closet for its prices to decline. By the time price level of housing units starts to decline, profitabili ty of housing companies begins to deterio localise cock-a-hoop way for experiencing a low return on investment in the next quarter.Driven by speculation, investors will 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 contention also make ups 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 menses degree of losses that housing companies and financial institutions had experience on the last quarter of 2007.Analysis 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(prenominal) 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 limited 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 former(a) through price competition. Meaning, housing companies tries to lower down the prices of their home units in target to attract more customers. The negative effects of eh oversupply of housing units will not be that severe if there is only adequate number of financial institutions that will provide loans and mortgages to uplift the purchasing power of the consumers, therefore, improving the demand on the housing industry. But the problem now would be, even financial lenders is also having a unuttered 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 presidential term would start making action by offering 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 payment period, in order to solve the problem of over supply on the said industry. Another way by which the governing body 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 par t of the paper, plays a major role in stir 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 form 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 luxuriant money to purchase housing units which will solve the problem regarding the oversupply of home units.Works CitedSteverman, Ben Housing A Fresh Jolt of Bad News. 8 January 2008. Business Week. 11 February 2008 http//www.businessweek.com/investor/content/jan2008/pi2008018_503594.htm?chan=search.