U.S. housing price Term Paper Example | Topics and Well Written Essays - 2000 words

U.S. housing price - Term Paper Example The situation became worse with the reduction in the availability of credit. This made it impossible for the willing prospects to pay for home ownership. This paper makes an attempt to investigate the housing problems of the US and the future that lies ahead of this sector. The project would also provide a direction to the prospective buyers of the houses and would help to determine how the prices of the new housing projects could be reduced. Necessary graphs and charts have been provided to present the statistics that would support the arguments put forward in the paper. How serious is housing price problem in the USA? Studies have proved that in the United States there exists inequality in the distribution of wealth among the population of the country. Federal Reserve has stated that out of the total net worth of the individuals, 27% is accounted for household real estate. An average American would allocate almost 66 % of his or her wealth for housing. On the other hand the high ne t worth individuals of the country generally keeps their money invested in form of a variety of financial assets. The major part of the investment portfolios of these people do not consist of housing investments. Therefore this group of people generally react less to the fluctuation in the housing prices. Thus when there is a rise in the housing prices the people belonging to the middle get mostly affected by it.... On the other hand the people who had their money invested in their primary residence faced the brunt. Generally the housing prices indices have been used to analyze the prices of the housing investments throughout the country (Holt, 2009). However, it cannot be generalized easily because there are regional disparities in the prices of the housing. The size and location of the housing has an effect on the prices that would exist in the market. There might also be defect in the construction of the housing prices index. These data on these indices present certain surprising information. Situations of distress sales of the housing have caused the builders to review their price setting procedure (Talbott, 2003). However, the homes which have been valued at a very high rate have faced a decline in their values with the problems in the housing market. There are a host of reasons for this. The debt to income ratio of the loans and the amount of down payment that the buyers could make for pur chasing a house had been low. Along with this, the loans that were provided were not underwritten in the proper manner. The long term interest rates in the country have been rising in the recent past. This has also posed a threat to the housing market. If the rate of interest on the bonds rises, people would shy away from making housing investments and would park their money for the long term because such investments would be riskless for the investor. Figure 1: Long term interest rates in 2013 Source: Nothaft, 2013 Thus the affordability of housing is quite low for those families that lie in the middle income group. This is especially true in the metro areas of the country. Again at a time of a boom in the housing prices, the real activities taking place