Is Unemployment The Reason For Home Starts Going Down?
\’Housing starts\’ is the terminology used in the housing market when new homes are constructed. For builders and construction companies to be willing to make the investment of building homes or neighborhoods, they will want to be confident of seeing a return on their investment before proceeding. Of course, this ROI would come from house sales.
House sales are associated very closely with unemployment since, to state the obvious, those without the available finance cannot afford to buy a house. When unemployment levels are high, house sales are low and this will probably deter prospective developers from begin new housing projects.
An individual\’s employment status would have a greater impact on the market and financial system than a single house which they might otherwise have purchased. If less individuals are purchasing houses, then this results in an age old rule coming into effect: Supply and demand. If there\’s a greater supply than demand, then the price drops, and vice versa. Dropping house prices will also contribute to a developer\’s decision as to whether to proceed with a project and if they feel as though they can\’t sell the completed homes at a suitable price then they are likely to not go ahead with any plans.
Unemployment can have a vicious circle on the economy because having no cash themselves to spend means that less cash is in circulation. This has a negative effect on business and commerce as income is reduced and could even lead to redundancies as businesses try to balance their books. A lack of housing starts would even contribute to this effect because less construction projects means less jobs.
The truth is that individuals who are unemployed can\’t afford to buy a home and therefore this will lead to the decrease in the number of housing starts. Several existing home owners even come under financial stress during hard economic times and may end up losing their homes themselves. This further decreases the cost of houses and increases the inventory of empty properties. With many existing, cheap properties already on the market there\’s little requirement for a developer to start constructing new homes.
With so much bad feeling about and lack of client confidence, even those who are gainfully employed are probably to tighten the purse strings should their own rainy day come about. Even those who are comfortable economically and could easily afford to purchase property with having to fear for their financial security in the future are likely to await the market to bottom out before investing.
Regardless of all of the available incentives to either keep your existing house or buy a new one, the best way to stimulate a flagging housing market is to create jobs. Creating jobs will start to circulate cash in the economy again and persuade individuals to spend and invest. Though it may initially be a costly operation for any nation, decreasing unemployment is arguably the best way to kick start any sector, housing included.
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