Gen 480

The housing industry provides a defined service to consumers, which is, of course, shelter. This service to consumers is directly affected by the state of the economy with relation to mortgage rates, GDP, the unemployment rate, inflation, personal income, and housing starts. These six economic indicators within the housing industry and within the economy as a whole rise and fall affecting one another.

The construction of new housing in the United States averages about 1.4 million per year and absorbs 4% of the gross domestic product (www.britannica.com). This percentage emerges from the normal operations of the marketplace and from the spending patterns of households. The marketplace may underestimate or over estimate the effective demand as well as the need for housing.

Gross domestic product (GDP) can calculate the total value of all goods and services produced within that territory during a specified period (most commonly, per year). During the first quarter of the year, GDP increased by 4.5%. However, the second quarter was not so great, it only increased by 3.3% (http://www.cirt.org). The third and fourth quarters are being roughly estimated between 4 and 5%. In the preliminary estimates for the second-quarter the Commerce Department dropped the GDP to only 2.8%. This created a real trouble sign for the labor market around mid-year, since the rate was way below the trend rate of growth for the U.S. economy that was estimated at 4%. The renewed economic momentum will produce growth close to or exceeding 4% for the fourth quarter of the year. Payroll job growth as well as some decline in the unemployment rate should be affected by the projected growth pattern (Seiders, 2004).

With 2004 being a peak year for home sales, Interest rates remain low, income growth is strong, and there is very little to be seen in the future that will curtail construction spending. As long as the unemployment rate is low and inflation is down the success of the home building industry will continue. Inflation is a continual increase in the overall level of prices. It is an increase in average prices that lasts at least a few months. The most widely reported measurement of inflation is the consumer price index (CPI). The CPI measures the cost of fixed set of goods relative to the cost of those same goods in a previous month or year. Changes in the prices of those goods approximate changes in the overall level of prices paid by consumers (www.bls.gov/new.release).

In April, the consumer price index increased by 0.2 %, after increasing 0.3 and 0.5% during February and March. In April housing prices were largely responsible for the overall increase. Inflation does reduce the purchasing