Economic indicators and their role in market analysis

Economic Indicators: Interest Rates and the Housing Industry

Residential Construction Industry

Throughout the last century our economy and way of life as Americans was permanently altered as a result of governmental involvement and the development of finance options, such as mortgage rates never before seen in the residential construction industry. In the beginning of the 20th century, what seemed unattainable by homebuyers became a common expectation by that century's close. These expectations dealt with a consumer not only being able to build his own home, but more importantly being able to possess personal property, which represented, "comfort, convenience and quality of life unknown to previous generations" ("A Century of Progress," 2003).

Thus, the idea of affordable housing for middle-class individuals is actually a relatively recent American historical phenomenon and highly dependant upon financing. Some economists date the so-called typical American suburban lifestyle to explosion of the highly standardized yet inexpensive suburban communities of model homes that were designed for the returning GIs and their families, after the end of World War II. Regardless of the history of suburbia, however, home ownership has come to be perceived as a realistic aspiration for the average middle-class American.

II. Present

One of the aspects of the current 2005 housing market that has served to make housing more affordable, even to the point of many industry analysts speculating that there is a real estate 'bubble,' is the relatively low rate of interest for home mortgage loans, and the lower interest rates in general that have been adopted by the Federal Reserve to spur the formerly sluggish American economy after the recession of 2001 into its currently more robust state. (Isidore, 2005)

The lower the rate of interest, the more incentive there is for the consumer to borrow money to purchase a house. Lower interest rates in general also make it easier for consumers to purchase furniture, cars, and the other necessary accoutrements of a middle class suburban lifestyles surrounding home ownership. A "rapid growth in the number of mortgage products and loan options is helping buyers to overcome down-payment hurdles ... however, some of these loans come at a price of increased risk to the borrower," cautions one real estate analyst. (Inman, 2005)