Business Environments and Macroeconomics
In the business environments, macroeconomics involves external factors which affect the business along with resource allocation. On the other hand, microeconomics concerns aspects associated with the availability of resources, their usage and how they influence individuals and the organization at large. Hence, understanding the microeconomic factors within the business is critical in strategic planning and development; these factors may include the consumers, employees, suppliers, stakeholders, competition and the media. Concerning housing market this spring, the home buying business is attention-grabbing, more so because of the increased mortgage rates, amendment of tax laws as well as the demand and supply imbalance. Therefore, this paper seeks to discuss the housing market while at the same time deliberate of the mortgage rates and taxes, demand and supply, and how they impact sales of homes.
Microeconomic Factors and Consumer Influence
Consumers are believed to have the most microeconomic influence in businesses since enterprises cannot operate successfully without attracting customers. According to Freddie Mac, the mortgage rate have recently risen from 3.78% to 4.45%, provoked by the global bond markets responsible for determining the long-term interest rates on loans ("What to Expect From the Housing Market This Spring," 2018). The arguments for the increased rates was based on the fact that the large budget deficits together with the rapidly growing economy might eventually lead to high inflation rates along with increased interest rates charged on federal reserves. Therefore, in a scenario where an individual can only afford to pay $2,000 monthly for a home mortgage, the person was eligible for up to $430,000 before the mortgage rate increase but now can only get a maximum of $397,000 in the mortgage. In fact, consumers will tend to acquire homes with urgency, increasing demand, fearing a further escalation in the prices ("What to Expect From the Housing Market This Spring," 2018). Thus, an increase or decrease in mortgage rates impact the consumers. However, fluctuations in the mortgage rates only increase demand. The customers will continue to acquire homes despite variations in the mortgage rate. As a result, the organization will keep enjoying profits from the increasing demand for home and thus the continued streaming of returns.
Tax Laws and Housing Market
On the other hand, the tax bill enacted in the US concerning housing also directly impact the housing market; the tax code affects the market by either subsidizing home ownership or drives up the prices. The law reduced the total sum of mortgage above which people would receive subsidies through tax-deductible policies; the figure was reduced to $750,000 from $1million (Hayunga, 2018). These policies mainly affect the middle and upper-class families all over the US as the law increases housing expenditure. Literally, the code means that people buying a house is presently more expensive as compared to the previous bill by almost over $2,650. Ultimately, the tax law reduced home transaction prices down by 4%, which is affected by the tax amendments leading to higher interest rates and thus deficits in the market (Hayunga, 2018). Concerning the business performance, the tax law along with the increased mortgage rate will amplify home prices in the short term. However, in the long run, the house costs will be moderate.
Impact of Interest Rates and Tax Policies on Housing Demand and Supply
Conversely, the changes in the interest rates and tax policies must undoubtedly impact housing demand and supply. It is notable that these changes also occurred at a time when housing business was booming and therefore caused an imbalance between the two forces. On one side, the number of families willing to acquire homes around cities, those who had stable jobs was overwhelming the amount of inventories available (Hayunga 2018). The 1990 millennial generation are currently becoming of age, the majority of them getting married and having children. Additionally, this generation was able to form households are much lower costs as compared to the previous cohorts – this was caused by job scarcity together with the financial crisis and cultural shifts towards owning homes, which has changed as people aged. Even so, the increased demand has not be accompanied by an upturn in supply.
The homebuilding sector attributed the changes with the constraints they faced, for instance, finding land to build on around the metropolitans was a challenge. These encounters even drove some firms out of business along with their employees, implying in long-term, there would be a shortage around building capacities ("What to Expect From the Housing Market This Spring," 2018). Moreover, the prices of building materials have also escalated thanks to inflation caused by the high demand. Ultimately, as more families seek to acquire homes, the market and prices will be on the rise, accompanied with the low supply together with adjustments on mortgage rates and tax laws.
Housing Market and Uncertain Elements
In conclusion, the housing business in the United States depends on which microeconomic aspects overwhelms the others; for instance, the contradictory forces of demand and supply or the mortgage rates and taxes charged. However, economically, it is established that even though prices might be high today, over time, the pressure will ease as sale increase as prices soften, precisely for the middle and lower-class families in the society. However, the outcome of the opposing elements of demand and supply remains uncertain; fluctuating mortgage rates together with tax bill will continue to influence housing markets across the US. For example, in scenarios where the cost of acquiring a home is too high, families may be forced to shift their attitude from that of buying a home to the alternative of renting apartments.
References
Hayunga, D. K., " Pace, R. K. (2018). The Impact of TOM on Prices in the US Housing Market. The Journal of Real Estate Finance and Economics, 1-31.
What to Expect From the Housing Market This Spring. (2018). Nytimes.com. Retrieved 12 April 2018, from https://www.nytimes.com/2018/03/28/upshot/housing-sales-mortgage-rates-tax-law.html
