Macroeconomic Policies and Effects on Real-Estate Business - Research Paper Example

Macroeconomic Policies and Effects on Real-E Business Introduction After engaging in corn farming, Uncle Dan wishes toshift into the real-estate business with a view of yielding more profits in the short and long run periods. However, there are challenges that he should consider in the real-estate sectors and realize whether the field provides opportunities over the threats compared to the corn farming business segment. An evaluative study of the macroeconomic practices present in the American economy, and in concern with the real-estate business sector denotes that there are challenges that investors must consider in order to succeed (Deng, Quigley, & Order, 2004). In details, the discussion seeks to establish the effects of fiscal, GDP, monetary, international trade, and demographic policies in real-estate business sector in the U.S.A economy. GDP growth rates and their effects Real-estate investments In the year 2008, the U.S economy faced a stiff slant as its domestic businesses slumped in performances due to inflation of the dollar unit. The government responded to the situation by resolving the dollar crisis and implementing long-term solutions to recover the economic deficits (McDonald & Stokes, 2013). Uncle Dan’s resolution to engage in real-estate business is for the good of the US society since the developed structures will provide direct and indirect job opportunities to many citizens in the nation (Capozza & Van, 2011). Statistics indicate that the US real-estate sector has in the past 3-year period contributed to the economy at a rate of 5%, 7%, and 8.6% respectively (Sanders & Order, 2011). Arguably, the real-estate economic segment serves to benefit the US economy through net contributions in the provision of working space for offices and other businesses that are invested within the rental premises. Therefore, a resolution to engage in real-estate business will serve to benefit the majority of the people and the investor will accrue profitable returns at the short and long run periods. Mainly, such benefits will be present in Uncle Dan’s real-estate business to the extent that he will provide commercial and residential premises to attract different customers with different needs and preferences (Deng, Quigley, & Order, 2004). The resolution further seems to be influential to the overall GDP rate of the economy. Economical reviews indicate that real-estate business’ contributions to the grand economic revenues at $2.15 trillion (LaCour-Little, 2008). Real estate business cycle in the US economy Reviews concerning the business practices reflected in the real-estate field of business denote the profound growth rate and it is evident that the business is yet to reach its optimum point of performance. The reviews indicate that the sector’s revenue totaled at $2.5 trillion in 2013. Such indications and the presence of increased population and demand for residential housing in the American society reveal the business’ high chances of success (Capozza & Van, 2011). On a different account, it is realistic that Uncle Dan resolution to include rental shops within the premises shall serve to benefit other new entrepreneurs who have innovative ideas and the necessary capital, but lack the essential space to establish their businesses. This implications show that Uncle Dan’s business and indulgence in the real estate shall be incremental to the revenue growth and the total per capita income for the population. Considerably, the new investment shall draw investors to start and run new businesses in the rental shops, and they will in turn provide employment opportunities to other people. These practices will serve to benefit all individuals since they will be capable of accruing financial returns, hence affecting their per capita incomes and the overall GDP (McDonald & Stokes, 2013). Uncle Dan is likely to increase his chances of success, though investing in the real estate since the market is yet to be exploited to the maximum capacity. Under such occasions, the demand remains to be high while the supply of residential and commercial premises remains at a reduced capacity. These factors are advantageous since Uncle done will be able to build the premises while targeting to sell and rent them at increased prices (Capozza & Van, 2011). Evidently, the market will hold no contest against the practice due to housing scarcity, and will be ready to make purchases of the premises. Fiscal policies and unemployment in relation to real-estate business investments It is vital for Uncle Dan to realize that fiscal policies in the US economy are likely to affect the demand and supply variables in relation to the property deals. The new real estate investment will serve purposely to benefit the rising population’s demand for housing. Specifically, the American population stands at 317,000 million people. This profound growth rate deciphers abundant knowledge that the demand for housing is likely to increase despite the limited space of expansion since there are those regions of the country’s geography that will be preferred as worth renting or purchasing a house (Deng, Quigley, & Order, 2004). The US economy suffered immensely from the 2008 economic crunch, a situation that led to reduced employment opportunities in the country. However, these aspects of the economy affected the nation for a period of two years until the federal monetary authorities intervened and set abundant policies that would restore and ensure growth of the economy. Since the authorities purchased more foreign currencies for example, $1 billion dollars in exchange of the Yen, this implies that the fiscal policies on the economy are determined towards reduction of the money supply. Such an approach is vital towards increasing the demand of products while the producing will struggle to increase the supply to meet it without increasing the prices. Relatively, the situation will lead to increased savings among the population and the people will be capable of purchasing durables including houses (Sanders & Order, 2011). In reference to Uncle Dan’s property, construction proposal, it is vital to realize that the US population is currently capable of purchasing and renting properties since the country has overcome the plights that were present following the economic crunch (Deng, Quigley, & Order, 2004). Considerably, Uncle Dan’s resolution to shift his business from corn farming to real-estate business is likely to yield abundant and profound profits since the market’s demand for durable commodities and assets is on the increase (Jarociński & Smets, 2008). Further, his move into the construction shall serve to increase economic performance since all those laborers hired in the construction and development period will earn substantial wages and salaries capable of inclining their lifestyles towards achieving better standards of living (LaCour-Little, 2008). Fiscal policies and the reduction of unemployment rates conform to these practices at the extent whereby the hired personnel shall be capable of reinvesting their earnings by setting up new businesses. Holding to the fact that the labor force for the construction program is likely to be sourced locally, there are chances that the earned revenues shall be reinvested in the premises (Capozza & Van, 2011). Arguably, construction of the premises shall lead to the improvement of the local population’s financial capabilities as well as yielding abundant profits to the sole investor. Monetary policies and interest rates in relation to the housing investment Economists indicate that the US Federal Reserve Bank resolved to propel economic performances through revamping finance to the domestic businesses. Certainly, the analysts realized that the overall reduction of taxes for the domestic products would lead to a reduction in the unit costs. Further, the population would be capable of purchasing products and services at increased marginal units due to their newly acquired financial capabilities (Sanders, Green, & Wachter, 2008). It is realistic to assert that the slashed taxes would draw the increase of demand for items that had initially been neglected due to financial incompetence (Archer & Smith, 2013). Studies reveal that the US economists affiliated with the Federal Reserve Bank adapted the approach of revamping financial aids, to the domestic corporations at reduced interest rates with a view that the move would saliently lead to increased production. Following these prospects, it is knowledgeable that the economy would grow towards recovery, and further reclaim America’s position in the global platform against other giant economies. Certainly, Uncle Dan’s proposal to enter the construction and housing industry is a worthwhile resolution since the local banks have the capability of loaning his project to completion through the asserted mortgage plans (Sanders & Order, 2011). Mainly, Uncle Dan shall need to access the banks for mortgage loans and embark on the property development project with the knowledge that the stipulated repayment plan and period shall conform to the completion and sale of the residential premises (Vargas-Silva, 2008). After evaluating the asset valuation plan of the local properties, the investor will be acquainted with abundant information that he will yield the target profits (LaCour-Little, 2008). Arguably, Uncle Dan will be capable of summing the total costs incurred and the interests accrued by the mortgages, and assert whether the actual difference is profitable with reference to his initial plan. Eventually, Uncle Dan will be able to complete his project, engage in the selling of the residential premises, and during such a period, he will be able to raise the unit prices after contemplating that the demand will be favorable. Lastly, the investment will be overwhelming and profitable compared to the corn farming business since he will be earning from the rental shops build alongside the residential houses in the 100 acre-piece of land. International trade policies and their effects to real-estate investments The US economy stands better chances over other global economies since its currency is recognized as the main exchange unit in foreign trading. This advantage coincides with the neo-liberalization policy, which enables the US to share its economic risks with other nations. With such credentials in place, Uncle Dan should honor his thought and shift to the construction industry. The local economy’s practices of ensuring that its domestic market continues to engage in the free enterprise practices is saliently of importance in the proportion of local production (Sanders & Order, 2011). Since the US lacks a comparative advantage in the production of corn compared to Latin American nations, it is evident that a continued economic practice of growing corn may not serve to yield beneficial returns. A reflection of the policies asserted by the authorities towards reduction of inflation and recuperation of the economy indicates that the US economy is capable of providing more advantages despite the prevalence of any threats. However, through the US policies that matches the international trade policies in reference to the reduction of political constraints that may hinder foreign investments, the demand for residential and commercial premises shall continue to grow. These attractive approaches of the domestic economy are favorable to foreign investors, and perceptions are that they will shift their interests towards investing in the local economy (Archer & Smith, 2013). Eventually, the new investor in the construction industry will yield the planned goals for the economy will reflect increased demand for residential and commercial units. Demographics The probability factor that Uncle John should realize in the market is that some of the population will indicate its devotion in home care services while others shall opt to attend institutions that offer orphanage for the aged (Sanders, Green, & Wachter, 2008). These advantages will serve to yield profits to the investor as the newly established premises might be rented to offer such services. Other constituents of the aged population may be seeking to purchase real estate properties, and relocate to the regions. Such an understanding indicates that the ageing market segment provides opportunities compared to the youths of the country (Capozza & Van, 2011). Marketing professionals realize that the upper class and upper middle classes of the country bear untamed zeal of purchasing as many properties as possible despite the ongoing situation of curbing economic crunch. Alternatively, if the investor is capable of identifying the characteristics of the needs and wants of demographic markets in the US society with the notion that the accrued information shall force restatement of the strategies to reach all groups with equated attention on the purchase of properties (Jarociński & Smets, 2008). Conclusion The immense survey and evaluation of the various macroeconomic policies present in the US economy indicates a favorable climate for the construction industry (Vandell, 2005). After evaluating the population’s GDP, it is evident that the demand is likely to increase hence investors should seize the opportunity to intensify their capital investments in the construction industry (Archer & Smith, 2013). The fiscal and monetary policies seem to affect the subjects of unemployment and interest rates positively. Therefore, the resolution to halt the practice of growing corn and a shift in the construction industry is valid. References Archer, W., & Smith, B. (2013). Residential mortgage default: the roles of house price volatility, euphoria and the borrower’s put option. Journal of Real Estate Finance and Economics, vol. 46, pp. 355–378. Capozza, D., & Van, R. (2011). The great surge in mortgage defaults 2006–2009: the comparative roles of economic conditions, underwriting & moral hazard. Journal of Housing Economics, vol. 20, no. 2, pp. 141–151, 2011. View at Publisher. Deng, Y., Quigley, M., & Order, R. (2004). Mortgage terminations, heterogeneity & the exercise of mortgage options. Econometrica, vol. 68, no. 2, pp. 275–307. Jarociński, M., & Smets, F. (2008). House prices & the stance of monetary policy. Federal Reserve Bank of St. Louis Review, vol. 90, no. 4, pp. 339–365. LaCour-Little, M. (2008). Mortgage termination risk: a review of the recent literature. Journal of Real Estate Literature, vol. 16, no. 3, pp. 297–326. McDonald, J., & Stokes, H. (2013). Monetary policy & the housing bubble. Journal of Real Estate Finance & Economics, vol. 46, pp. 437–451. Sanders, A., & Order, R. (2011). Introduction to the special issue on housing & the credit crunch. Journal of Housing Economics, vol. 20, no. 2, pp. 66–67. Sanders, R., Green, A., & Wachter, S. (2008). Special issue on subprime mortgage lending. Journal of Housing Economics, vol. 17, no. 4, p. 253. Vandell, K. (2005). How ruthless is mortgage default? A review & synthesis of the evidence. Journal of Housing Research, vol. 62, pp. 245–264. Vargas-Silva, C. (2008). Monetary policy & the US housing market: a VAR analysis imposing sign restrictions. Journal of Macroeconomics, vol. 30, no. 3, pp. 977–990. Read More