For the Writing Assignment, you need to read the article: “Housing Market is Waking up to a New Hangover” by Diana Olick, published on October 2014 by USA Today. The article can be downloaded from the following link: https://www.usatoday.com/story/money/business/2014/10/26/cnbc-housing-hangover/17772977/
The article illustrates a number of economic concepts we have discussed in class. You should write a short narrative essay that analyzes the article using the tools developed in class. Below is a guideline on how the essay should be structured:
Content
Your essay SHOULD address ALL points/questions below and include 3 graphs
• In the first paragraph introduce your essay, say what you are going to discuss, and reference the article.
• In the following separate paragraph(s) summarize the main points of the article.
• In one passage the article reads: “Investors, desperate for yield and fueled by Fed-induced cheap cash, swarmed the most distressed housing markets, buying bargain-basement properties and turning them into rentals.” Discuss this passage by addressing the following points and provide an analysis (in an essay form):
• Using an S-D graph (on a market for housing), show how “investors buying properties” impact the housing market. Does any of the curves (Demand or Supply for homes) shift in this case? Why? Please explain clearly.
• What happens to equilibrium price and quantity of homes when “investors buy properties”? Why?
• What happens to consumer and producer surplus in the housing market when “investors buy properties”? Explain why. Be specific.
• In another passage the article reads: “Foreclosures have fallen to new lows since the crisis…” Discuss this passage by addressing the following points and provide an analysis (in an essay form):
• Using an S-D graph (on a market for housing), show how a decline in foreclosures has impacted the housing market. Does any of the curves (Demand or Supply for homes) shift (because foreclosures decline)? Why? Please explain clearly.
• What happens to equilibrium price and quantity of homes due to the decline in foreclosures. Why?
• What happens to consumer and producer surplus in the housing market because of “a decline in foreclosures”? Explain why. Be specific.
• In another passage the article reads: “Prices soared again between 2011 and 2013 due to the Federal Reserve’s intervention; it bought billions of dollars worth of mortgage-backed bonds and pushed the average rate on the 30-year fixed to a record low.” Discuss this passage by addressing the following points and provide an analysis (in an essay form):
• Using an S-D graph (on a market for housing), show how Federal Reserve policy to buy mortgage-backed securities (which lowers mortgage rates) impacts the housing market. Does any of the curves (Demand or Supply for homes) shift? Why? Please explain clearly.
• What happens to equilibrium price and quantity of homes because of the Federal Reserve policy? Why?
• What happens to consumer and producer surplus in the housing market because of Federal Reserve policy? Explain why. Be specific.
• Based on your understanding of elasticity, which of the market do you think has a higher elasticity of demand: buying a house/apartment or renting a house/apartment? Provide a brief explanation on your essay (a short paragraph will suffice).
• Write your conclusions in one last paragraph.
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