Monday, November 5, 2012

Discussion Topic 11/5/2012

Do you think real-estate can reboost the Economy? How?


  1. Mengyao Kong:
    I like the idea at the end of the article, every little bit thing would help the economy. In general, it is hard for me to believe the housing individually would drive the whole economy up especially you consider about that the existence housing supply. However, the housing is definitely a big part of it. Also, a big thing of housing is that the rural part won’t be a boost point in the future. The newly graduates from college would go to big cities where the jobs are around. When Y generations get older, they will start to think to move to the countryside but not now.
    The article also mentioned one thing I’m interested in. It said the home renovations are a big part. Personally, I believe that due to the lack of disposable income, a lot of people choose renovation instead of moving in a new place. As the recovery of housing market, this number will drop a bit, and the estimate might be a little bit optimistic.
    I have a question about the refinancing the debt. We are saying that homeowners just refinance their mortgage rate at a lower interest rate, right? Not the principal. Also, I am always curious that why does bank want to refinance the debt earning less interest?

  2. Tian Tan:
    I think housing is only one of keys to reboost the economy of America.

    After the financial crisis, people including house buyers, banks and constructors will be more alert to the overheating of housing market. There will probably not be much money invested in real-estate. Banks will be more strick when issuing mortgage. Constructors will slow down the pace of building new houses, which will slow down the growth of housing related industries like raw materials industry.

    Other keys to boost economy includes bringing back manufacturing jobs, cutting tax to increase disposable income for consumers, adapting workers for new industries.

    By the way, I think it's a good opportunity for Chinese investor to look at the housing market in America. Obviously now the housing price is at the bottom and will recover more or less. If buying a house can get a greencard. There will be billions of RMB transferred over Ocean Pacific.

  3. Xiao Zhong
    Under current economic downturn, it makes sense that people are always looking for something to boost their confidence and with the implementation of QE3, housing market would become the biggest (fortunately not the last) straw because of cheaper houses, cheaper debt, and most importantly, the new jobs this market can create.

    However, I doubt whether the housing market would recover so much that it can really reboost the economy to a large extent. As Tian mentioned, both investors and developers are becoming more cautious about housing market after the crisis and a heated housing market as pre-crisis seems far away; in addition, with the stiffer government regulations, banks are bearing higher costs in offering mortgage loans. So it seems impossible for them to further cut down interest rates on mortgages to such a great extent that would attract a large number of buyers. Thus many buyers may take the wait-and-see attitude or simply choose to rent a house. With limited increase in demand, developers may be reluctant to enlarge investment in the long run.

    In conclusion, I think housing market can help reboost the economy but not greatly. To achieve greater and quicker recovery, US has to focus more on industries with fewer bubbles and risks such as manufacturing and agriculture or on innovations such as high-tech.

  4. Tim Shoji
    Looking at the Case-Shiller Index, we can see that home prices are recovering in most major cities:

    This is a huge improvement from a year ago, and shows that the housing market is on the recovery. However, this is far from claiming that the housing market will be the driver of the economy in the near term. Many people are still "under water" in their mortgages, and the painful memory of this recent housing bubble will prevent a boom in the real estate market anytime soon. I think an argument can be made that since most Americans have a majority of their equity stake tied to their homes, a full recovery in the housing market could affect consumer's spending behavior dramatically. But that doesn't necessarily mean that the government should take an active role in propping up the housing market. Many people clearly bought homes they couldn't afford, and the market will require a slow readjustment process driven by the forces of supply and demand to reach a new stable equilibrium.

    Instead of looking or a particular sector, such as housing or real-estate, to drive the economy, we should focus on wise macro-wide policies to encourage overall growth. For instance, we should be reforming our tax code, promoting more free trade, making sure our workforce is adequately trained and making it easier for immigrants to work in the U.S.

  5. Glenn
    I really find this quote interesting... "Superstorm Sandy, which hammered the U.S. Northeast last week, could put more people to work in construction."

    True, but at what cost? When people talk about job growth, they tend not to tell the entire story. The story here is that the hurricane is causing catastrophic losses, and economic activity caused by cleanup efforts may redeem 1/1000th of the economic losses. You can't really say that GDP is an indicator for real estate and housing, but whether people are employed in order to pay of mortgages. Because of the economic uncertainty at the moment, people are saving more, and may more reluctant to take out a home loan when they are worried about their job situation. What we really need is more certainty in the job market, which will lead to increased consumer confidence, and people will spend money more freely.

  6. Pian Li
    I dont think houses will push up the economy. Yes, it is true that constructing more houses will create jobs. However, even there are more jobs, if consumers have no money to consume, the economy wont rebound at all. Also, the article mentions that there are still money underwater. As is known to all, the 2008 crisis is due to the break up of capital strains between the banks and borrowerss. Now the economy has not recovered yet. Thus, if borrowers till now cannot pay back the money and if they want to construct more houses, banks will lend them more money, the finance bubble will become bigger. It is never a good way to boost economy.

  7. Zhishuo Zhang
    I really do believe that every little bit helps. Real estate alone surely cannot boost the economy in the near future. Both demand and supply are not adequate. However, if consider housing as one of many ways to push the economy and improve everything gradually at the same time, it will be effective. For example, the job market more secure, mortgage rate lower, tax rate lower for middle class, then people are willing to spend more; GDP goes up with real estate price, then it is a positive cycle.
    The challenge is not only where to start. It is that when you start one thing, people will criticize you on the negative effect on other things. How to deal with these criticisms and set up a clear goal would make a difference.

  8. Amine Bensaid
    While the housing market is in a clear recovery mode, it will not be the only factor that will help boost the GDP/Economy. In fact the latest GDP report we had a short term increase of 2% that was mainly boosted by the increase in government spending. I think that in order to see real recovery consumption and gross investments will be the most important variables that will have a considerable effect in the GDP.