Question

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1) At the time of this assignment indicate the median house price in the following locations: Palm Beach County, New York City, and your home town. Discuss the trend in real estate prices and why real estate prices are important in the economy.

Explain what is meant be a federal budget deficit/surplus and the national debt. For your country indicate what the budget deficit/surplus is expected to be for the next fiscal year. For your country indicate the amount of the national debt.

Summarize an article from the Wall Street Journal or New York Times that you believe has an impact on either your company or country.

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or you can do what you feel

Answer 1

Real estate has traditionally been considered a safe investment. But recessions and other disasters are testing that theory—making investors and would-be homeowners think twice.

Historical Prices

Prior to 2007, historical housing price data seemed to indicate that real estate prices could continue to rise indefinitely. In fact, with few exceptions, the average sale price of homes sold in the U.S. climbed steadily each year from 1963 to 2007—when the housing bubble burst and the financial crisis of 2008 ensued.

Rebound after the Financial Crisis

By 2013, the average sales price of homes sold in the U.S. had rebounded to pre-crisis levels. For the next several years, the uptrend looked promising, until 2018 when prices flattened, and then began to fall slightly in 2019

Current Home Prices

It's too soon to tell what will happen to home prices in 2020 and 2021, but if history repeats itself, we can expect a drop in home prices as a result of the COVID-19 recession. As of March 2020, purchase contracts started to fall amid mortgage troubles, a lack of buyer interest, and even decline in available appraisers and other professionals needed to execute transactions.

At the same time, potential construction changes and delays have become a very real concern. Again, it's too soon to know what will happen, but it's possible that new starts and renovations will take a hit into 2021.

The Federal Housing Finance Agency’s seasonally-adjusted purchase-only U.S. house price index rose 4.76% y-o-y in Q2 2019 (3.12% inflation-adjusted), the lowest growth in almost five years. The FHFA index increased just 0.75% q-o-q during the latest quarter (-0.02% inflation-adjusted), the weakest showing since Q4 2011.

Despite this, 19 of the 20 major U.S. cities continued to experience moderate to minimal house price hikes, according to Standard and Poor’s, with Phoenix posting the highest increase of 5.83% during the year to Q2 2019, followed by Las Vegas (5.51%), Tampa (4.71%), Charlotte (4.54%), Atlanta (4.5%), Detroit (4.21%), Boston (3.87%), Minneapolis (3.85%), Cleveland (3.43%), and Denver (3.37%). Minimal house price rises were registered in Washington (2.89%), Miami (2.77%), Dallas (2.66%), Portland (2.36%), Los Angeles (1.57%), Chicago (1.55%), San Diego (1.33%), New York (1.11%) and San Francisco (0.72%). Only Seattle saw a house price decline of 1.32% during the year to Q2 2019.

The median home value in New York is $652,307

The median price of homes currently listed in Palm Beach County is $349,900 while the median price of homes that sold is $287,100. The median rent price in Palm Beach County is $2,000,

The median home value in California is $578,267

How the housing market and changes in house prices affect the rest of the economy. In summary:

• Rising house prices, generally encourage consumer spending and lead to higher economic growth – due to the wealth effect.
• A sharp drop in house prices adversely affects consumer confidence, construction and leads to lower economic growth. (falling house prices can contribute to economic recession)
• Rising house prices can also redistribute wealth within an economy – increasing the wealth of homeowners (primarily older people), but reducing effective living standards for those who do not own a house (often the young)

Housing Prices and Banking Sector

House prices can impact the lending practices of banks. When house prices are rising rapidly, banks see an improvement in the value of their assets. They feel more confident in increasing bank lending and reducing their reserve ratio. The long housing boom of 1995-2007, was one factor that encouraged bank lending to increase. Some former building societies like Northern Rock and Bradford & Bingley were so keen to lend; they were borrowing money on money markets to lend more mortgages. This bank lending proved unsustainable when the credit crunch hit.

Falling house prices tend to cause a fall in bank lending. Banks will see a decline in the value of their assets and may lose money, should homes become repossessed. This was particularly a problem in 1991 when falling house prices were combined with high-interest rates.

House prices and construction sector

The construction sector is quite volatile and a period of falling house prices is likely to discourage investment and building of new homes. This decline in construction is another factor which will lead to lower economic growth.

A budget deficit occurs when expenses exceed revenue and indicate the financial health of a country. The government generally uses the term budget deficit when referring to spending rather than businesses or individuals. Accrued deficits form national debt.

The opposite of a budget deficit is a budget surplus. When a surplus occurs, revenue exceeds current expenses and results in excess funds that can be allocated as desired. In situations where the inflows equal the outflows, the budget is balanced.

The Committee for a Responsible Federal Budget OF USA estimated that the budget deficit for fiscal year 2020 would increase to a record $3.8 trillion, or 18.7% GDP^.

As of May 1, 2020, in USA, federal debt held by the public was $19.05 trillion and intragovernmental holdings were $5.9 trillion, for a total national debt of $24.95 trillion.

ARTICLE IN WALL STREET JOURNAL THAT HAS IMPACT ON COUNTRYS' ECONOMY

U.S. debt has reached its highest level compared to the size of the economy since World War II and is projected to exceed it next year, the result of a giant fiscal response to the coronavirus pandemic.

The Congressional Budget Office said Wednesday that federal debt held by the public is projected to reach or exceed 100% of U.S. gross domestic product, the broadest measure of U.S. economic output, in the fiscal year that begins on Oct. 1. That would put the U.S. in the company of a handful of nations with debt loads that exceed their economies, including Japan, Italy and Greece.

This year the ratio is expected to be 98%, also the highest since World War II.

The surge in borrowing so far isn’t creating angst among investors or hampering the U.S.’s ability to borrow more. Investors have gobbled up U.S. Treasury assets, drawn to their relative safety. Moreover, interest rates are expected to remain low, suggesting the government still has plenty of room to borrow.

The yield on the benchmark 10-year U.S. Treasury fell Wednesday to 0.643%, from 0.672%, in line with a broader rally in financial markets. Bond yields fall as prices rise .

The U.S. passed the 100% debt-to-GDP mark, measured on a quarterly basis, in the April to June quarter, when government spending surged to combat the new coronavirus and tax

revenue plunged. But this would be the first time in more than 70 years for it to do so for the federal government’s full fiscal year.

The last time the U.S. debt level exceeded economic output was in 1946, when it stood at 106% after years of financing military operations to help end World War II.

Policy makers have compared the fight against the coronavirus to a military war effort, and approved roughly $2.7 trillion in spending since March for testing and vaccine research, aid for hospitals and economic relief for businesses, households and state and local governments. Federal revenue fell 10% from April through July, compared with a year earlier, as fears of the virus and widespread business shutdowns brought economic activity to a standstill, and firms laid off millions of workers.

The combination of those factors sent the federal deficit soaring and caused government debt as a share of economic output to jump.

By the end of June, total debt had swelled to $20.5 trillion from $17.7 trillion at the end of March, a 16% increase over just three months, according to Treasury Department data. Meanwhile, the economy shrank 9.5% in the second quarter, bringing debt as a share of GDP to 105.5%, compared with 82% in the first quarter.

“It was a massive rise in borrowing and quite shocking, but incredibly effective,” said former CBO chief economist Wendy Edelberg, who in June became director of the Hamilton Project, a think tank affiliated with the Brookings Institution. “On the flip side, this is exactly why we, as a country, want to have room to increase borrowing during times of emergency.”

Interest costs are expected to eat up a larger share of the federal budget, topping out at $1 trillion a year by the end of the next decade, Mr. Riedl estimates.

The larger the debt grows, the more sensitive it becomes to even small shifts in interest rates, and the more likely it is to crowd out private investment, he added.

House Speaker Nancy Pelosi said last week that Democrats would be willing to accept a $2.2 trillion relief package, but the talks remained at an impasse as Senate Republicans prepared to introduce legislation after they return from their August recess next week.

Federal Reserve Chairman Jerome Powell and some economists have said Congress needs to do more to support the nascent recovery, especially with unemployment in double digits and the virus continuing to spread throughout the country. The pandemic has forced many states to alter reopening plans and could temper the economic rebound expected this summer.

“I think we’re going to continue to see the U.S. economy recover,” Tyler Goodspeed, the acting chairman of President Trump’s Council of Economic Advisers, said at a press briefing last month. “It would recover a lot faster, and with much less long-term scarring, with additional support.”