IB Economics Commentary: US Housing Market Improves Slightly – Case Study Example
IB Economics Commentary: US Housing Market Improves Slightly The housing market is one that was faced by various challenges during the US economic crisis. The recent increase in sales of houses is therefore desirable as it has help hike the number of persons owning homes. The reduction in mortgage interest rates, the increased rent, pent up household formation and the bargain home price accounted for the increased sales and reduced prices (Raval 25).
The factors will result into a downward movement of the demand curve from point A to point B. at this point the prices will be reduced from P0 to P1. A reduction in the price from will therefore result into an increase in the quantity sold fronmQ0 to Q1.
The diagram shows that the performance of the housing industry is consistent with the fundamental of economic theory that argues that a fall in the prices would result into an increase in the quantity sold. The equilibrium moved from point A to B. furthermore, the total number of houses available for sales declined with the increased sales by o.4percentage to 2.31 million.
Moreover, the increased number of buyers was attributed to the changes in weather. This therefore means that there was a shift in the demand curve outwards. Buyers were taking opportunity of the fall in prices to acquire houses before the situation could revert. Other factors that affect the demand other than the prices leads to shift rather than a movement along the demand curve (Raval 27). Because of the increase in the demand, suppliers would be willing to increase their supply and reduce their stock and this would simultaneously result in a fall in the prices. A larger shift in the demand curve compared to the magnitude of the shift in the demand curve causes a fall in prices and an increase in the quantity demanded as shown from the diagram below.
From the diagram, an increase in demand would shift the demand curve from D1 to D2 while an increase in supply is marked by the shift from S1 to S2. The simultaneous shift in the demand curve and supply curve will result in the changes in the equilibrium price from P1 to P2 that is a fall in the prices and change in the quantity sold from Q1 to Q2 which, is an increase in the number of houses sold.
The fall in the house prices similarly led to the increase in the number of new homeowners. It is forecasted that the existing trend may not favor both the buyers and the sellers. This is because, there is likely to be a shortage of houses after 6 months because the amount of sales exceed the quantity of supply. In addition, it is forecasted that future changes in whether could result into a very different situation where the number of sales will begin to decline.
In conclusion the gains realized in the housing markets are positive and remarkable,. However, the long-term effect could be reversed if the changes future changes are not well taken care of. Housing market still and will team in a determinant of the US general economic performance.
Raval, Anjli. "US housing market improves slightly." Financilal times (2012).