Question

If unemployment does increase as predicted, explain what impact this would have on the demand in the housing market and house prices? Use a supply and demand diagram to aid your answer.

Answer 1

Answer -. Introduction:

Unemployment is one of the biggest concern in the current time ,it was one of the sesitive sector before also but now owing to pandemic the unemployment rate i.e. the people who wants to work at the available wage rate cannot find job , has dropped rigrously. In this time in developed nation like US has reported 6.9 million people were unemployed there in March alone

Impact on Housing market and prices -

1. Slow growth - it is predicted that the sales will be slow , with the buyers and sellers being physically away there is very rare chance to close a real estate transaction virtually. Thereafter, lowering the sales
2. Lack of demand - due to lack of demand in the market many of the sellers will put there properties off from the market , as pere YOY , this set off has been of almost 150% till end of March
3. Halt in property cycle - the sales and purchase or construction or renovation of properties come under it, due to lack of demand it will be more on stop
4. Security needs - with jobs at risk which makes future payment uncertain ,makes people more concerned for the basic living covering the basic security need will be priority rather than buying or selling property
5. Builders perspective - the builders could not cope up with the demand in the normal conditions with unemployment being high , lack of labor and material and fall in demand . Builders will not take much interest to do heavy investment

Graphical :

The above shows what will be effect of unemployment on demand and supply of housing market

• Initally the market is at E , equibirium wherein the price is P and quantity is Q
• However with employment insecurity or unemployment there will be uncertainity of future income as a result the demand curve from initial D moves to D1 as people will start demanding less
• Resulting in lack of demand , making housing price to fall as well thereafter with fall in demand , new equibirium is at E1 and price will be P1 and quantity Q1.

Conclusion :

Such a situation ,which is the reality of today is of recession only with unemployment increasesing with an steep rate and with fall in all sources of revenue the price will also fall with fall in demand