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Slowdown in U.S housing market Essay

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Updated: Apr 22nd, 2019

Slowdown in U.S housing market

During the period between 1998 and 2008, the prices of housing in the United States rose dramatically. In some part of the country, the prices increased by more than fifty percent (Roberts 25). This process can be explained by different factors such as deregulation, tax policies, low interest rates, and the firm conviction of many people that real estate will never depreciate (Roberts 25).

Nevertheless, in 2006 U.S. housing market began to slow down. The prices on housing declined in different regions of the United States. Despite the efforts of the government, the situation has not changed much, and the real estate market of the country remains stagnant even at the beginning of 2013.

This problem will be discussed can be attributed the fact that modern economy has become extremely interconnected, and the failure of one sector can adversely influence other areas of economy.

It is particularly important to speak about the context of this issue because in this way one can better understand its impacts. First of all, before 2006 the value of housing was important for the purchasing power of many people in the country. Furthermore, the sustainability of many banks depended on the price of housing since these institutions used real estate as a form of mortgage or collateral (Roberts 12).

Additionally, the financial performance of stock could be affected by the housing market. Thus, one can argue that different elements of the economy were extremely interdependent. This is the reason why the collapse and subsequent stagnation of the housing market produced far-reaching consequences.

There are several implications of this crisis. In particular, one can speak about the diminishing availability of credit for the population since many banks expect to receive some collateral from the borrowers. The problem is that real estate has long been the most conventional form of collateral, and currently it has become less valuable.

Furthermore, in the U.S housing market, the supply significantly exceeds the demand for real estate. Moreover, a great number of financial institutions and governmental agencies face a significant challenge. In particular, they should avoid numerous foreclosures since this trend increases the supply of the housing. These are the main challenges that should be overcome.

One can identify several consequences that are very important. For instance, the revenues of many real estate companies dropped dramatically. These organizations have to lay off many of their workers. At this point, the sustainability of these firms is under threat. Furthermore, one should remember about the difficulties faced by homeowners.

At this point, these people do not know whether their real estate can retain its value in the future. This issue is very urgent when the rate of foreclosures increases. Furthermore, one should remember that many communities have been affected by this slowdown. Many of them have become almost abandoned because of many people had to leave their houses. This is another issue that should not be overlooked.

These examples suggest that the recession of the U.S housing market has affected various stakeholders such as homeowners, financial organizations, real estate companies and sometimes even entire communities. The most important challenge is the lack of stimulus that can revitalize this industry. This is the main problem that policy-makers and business leaders should address in order to boost the development of the American economy.

The government’s rent control and rental regulations

Another issue that should be discussed is the rent control that is aimed at making housing more affordable (Rowley and Schneider 188). In many cases, governmental regulations are supposed to act as price ceilings that prevent the price of rent from increasing. Furthermore, they are designed to protect the rights of clients who often fall victims of information asymmetry (Rowley and Schneider 188).

Apart from that, these laws are designed to benefit many families since it may be difficult for them to find a new apartment. This is the main rationale for adopting this strategy. It is important to determine the implications of this policy, especially its impact on the market.

One can say that this intrusion into the market can create difficulties for tenants and renters. However, these regulations are vital for people with low levels of income.

First, it should be noted that these regulations have become extremely important at the time, when the price on housing was gradually rising. Some people could not afford to purchase a real estate, and rent was probably the only option available to them. This situation was very widespread among low-income people who could not receive a mortgage from a bank.

Nevertheless, one should also remember about people who choose to rent their houses. These individuals and organizations can be affected by inflation, while price-ceilings do not always reflect the changes in the inflation rate. Moreover, it should be kept in mind that these stakeholders can invest capital in the redevelopment of the housing that they possess (Euchner and McGovern 168).

Nevertheless, they may be unable to recover these costs by increasing rent prices. These are some of some of the main circumstances that should be considered. These factors can explain some effects of governmental intervention in the housing market.

There are several consequences and implications of this issue. First of all, researchers believe that this policy decreases the mobility of people. In other words, they are willing to stay in those cities, where they can find more affordable housing. This means that they can be deprived of many economic opportunities, for instance, when they have to find a new job (Rittenberg 100).

Additionally, economists warn policy-makers about the existence of the so-called shadow market that are hardly regulated by the government (Euchner and McGovern 168). The problem is that in state-controlled markets the demand for housing will eventually exceed supply.

The property owners, who have to work in such an environment, can rely on the backdoor payments while dealing with customers (Rittenberg 100). For example, one can mention the use of large security deposits (Rittenberg 100). This is the main danger that legislator should be aware of while designing their policies.

Yet, one should remember about another effect of price controls. They create more security for many occupants are dependent on the availability housing and the stability of prices. These people cannot be easily evicted from houses. As it has been noted before, for many families it is extremely challenging to find a new accommodation.

The rent control is supposed to uphold the rights of these people. Thus, one should not forget about the possible benefit of this strategy. Economists believe that government can give some tax relief to the property owners who have to operate in state-controlled market (Rittenberg 100). In this way, they can reconcile the interests of different stakeholders.

Therefore, one can argue that the governmental regulations can create many difficulties for people who need to rent an apartment or a house. In particular, this strategy can eventually decrease the supply of accommodation. Nevertheless, it can increase the security of many tenants. Thus, it has both advantages and disadvantages that should be taken into account by policy-makers in the United States.

The minimum wage laws

The economic development of a country is also influenced by the existence of the minimum wage laws. According to these regulations, private companies and governmental organizations are obliged to pay a certain minimum amount of money for their hourly work (Mathis 371).

Overall, it is possible to argue that these laws are important for protecting the rights of employees in the workplace. Moreover, they are important for increasing the purchasing power of the population. This is why they can be regarded as a positive force. This is the main argument that should be examined in more detail.

It should be noted that minimum wage law has a long history in the United States. For example, they can be traced to 1933. In turn, the most recent piece of legislation is Fair Minimum Wage Act of 2007 (Mathis 372). Overall, these protective measures are particularly important for young and often unskilled people who often lack experience and expertise.

These workers are most likely to become the victims of unscrupulous employers. This danger is the most important rationale for enacting minimum wage laws in the United States. Nevertheless, one should not forget about the interests of companies that are now driven by the need to reduce their operational costs and labor expenses.

This conflict of interest is one of the reasons why these regulations are so often debated. The task of policy makers is to find some form of compromise. It is vital to look at the possible consequences of this strategy and its long-term implications.

Overall, one can say that nowadays the existence of minimum wage laws influences various kinds of businesses. These organizations can be engaged in different economic activities such as construction, hospitality, fishing, retailing, and so forth. The workers, who benefit from the legislation, often lack professional education, and their labor is not very expensive (Mathis 373).

The most important benefit of this policy is that the purchasing power of low-wage employees remains relatively stable. Some critics of this policy believe that minimum wage laws can decrease the demand for the labor of young workers. However, this hypothesis has been fully confirmed (Mathis 373).

Therefore, there are no adverse consequences of this regulation; at they have not demonstrated in an empirical way. This is one of the main points that can be made.

Thus, it is possible to argue that minimum wage laws have already become an inseparable part of the modern economic life. These regulations are important for a great number of workers in the United States.

Although some companies can be reluctant to accept these laws, they remain vital for ensuring the compensation of workers and the purchasing power of American people. This is the main reason why this initiative can be supported by the government.

Works Cited

Euchner, Charles and S. McGovern. Urban Policy Reconsidered: Dialogues on the Problems and Prospects of American Cities. Philadelphia: Routledge, 2003. Print.

Mathis, Robert. Human Resource Management, New York: Cengage Learning, 2010. Print.

Rittenberg, Libbie. Principles of Microeconomics, Boston: Flat World Knowledge, 2008. Print.

Roberts, Lawrence. The Great Housing Bubble, New York: Monterey Cypress LLC, 2008. Print.

Rowley, Charles, and F. Schneider. The Encyclopedia of Public Choice, New York: Springer, 2004. Print.

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