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Housing Market Post and Pre Recession - Lab Report Example

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The objective of the present paper is to analyze the characteristics of the housing market over the period of 1982Q3 to 2010Q4. The period has been characterized by 4 recessions. A recession is generally defined as a drop in the GDP for three consecutive quarters…
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Housing Market Post and Pre Recession
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Housing Market Post and Pre Recession

Download file to see previous pages... As a result, this recession lasted for four quarters. Finally, the last recession that occurred, took place not so long ago. It started in the 4th quarter of 2007 and lasted until the 2nd quarter of 2009. As can be verified from Figure 1 below, all these recessions by definition are identified with bar markers in periods that have followed such declines in GDP for three consecutive quarters. An important point to note here is that the length of the recessions has increased over time. The first and second recessions in the duration lasted for two quarters, the third lasted for four quarters and the recent recession has lasted for seven consecutive quarters. The cyclical pattern of real GDP is also evident from Figure 1. In the initial period, right after the recession, the percentage change of GDP rose sharply until the 1st quarter of 1984 and then stabilized and expressed some volatility and then started falling in the last quarter of 1989. The decline continued and became a recession lasting for two quarters. The ensuing climb was volatile, but the trend was positive until GDP growth reached a peak of 10.25% in the 2nd quarter of 2002. It started declining sharply there on and this drop became the 4 quarter long recession of 2001. There was a volatile and slow but steady climb until the last quarter of 2006 whereon the GDP growth rate started plummeting and this marked the onset of the latest recession. The decline in the rate of growth of GDP was most substantial during this latest recession. Figure 1: Movement of GDP The first indicator of the housing market that will be considered is the real average housing price. These are presented in Figure 2 along with the markers for recessions. The movements of the housing prices exhibit very strong cyclical behaviour. Further, taking a closer look reveals that the trends almost mirror those of the real GDP growth, although the volatility is substantially lower. The movements of the housing prices on average are smoother, though the beginnings and the endings of the cyclical rises and falls coincide with those of the real GDP growth in general. Figure 2: Movement of average real house prices Next we turn to Figure 3 which presents the movements of month’s supply of houses for the period under consideration. From the graph we see that month’s supply of houses falls in periods during or immediately following a recession. This is in contrast to housing prices which we saw follow the pattern of real GDP growth and, thus, slow down before the onset of the recession and start rising during recoveries. Figure 3: Movements in month's supply of housing Specifically, from Figure 3 we find out that month’s supply has gone down following all recessions in general. Following the recession of 1982, housing supply has reflected as slight decline in overall trend, although it has hovered around an average. The decline is more pronounced in the aftermath of the next recession. There was a substantial decline in this phase and the declining trend continued onto the third recession. It picked up around early 2005 and sharply rose reflecting the housing bubble and reached its peak in the middle of the fourth recession. Another point worth noting from the graph is that the series has exhibited significant volatility and the latter seems to reflect a lagged reaction to it in the GDP series. The final indicator we look upon in this discussion is the dynamics of ...Download file to see next pagesRead More
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