Impact of the Housing Market on the US GDP Term Paper

Impact of the Housing Market on the US GDP - Term Paper Example There are different types of competition and different types of markets available in economic sense. Why is GDP important? The GDP Gross domestic product is one of the primary indicators to predict a country’s stability and economic health. â€Å"Gross domestic product (GDP) tells you about the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living.† Impact of the Housing Market on the US GDP (Facts and Statistics): the housing market of US includes the construction, sale, and resale; of all residential properties all over the country, people might underestimate the US housing market but usually the conditions of the housing market indicates the stability of the entire economy. Homes are fixed Assets. Constructing and selling of the houses are highly related with the economic society. People usually buy houses for the purpose of long term investment. Hous es are their tangible assets. People only buy houses when they are confident enough that they will be able to pay entirely for the house. But often people take loans and borrow money from people to purchase a house and when they fail to pay back, this has a very diverse impact on the economy. Besides the basic buying and selling of the houses, whenever a new house is built or purchased many new appliances, furniture, utility services, and many other goods and services are brought. Many people earn their livelihood by constructing, buying and selling of the houses in US. Hence the Housing market has a vast impact on the US economy. â€Å"The best way to judge the stability of any country is to look at its GDP, the U.S. economy, as measured by GDP, is everything produced by all the people and all the companies in the U.S. In 2010, it was $14.7 trillion. (The American Bureau facts and statistics 2010)† Housing is a â€Å"mid-stream† sector of the economy, meaning that man y other industries, both upstream and downstream, is affected by the health of the housing market. For example, the demand for building materials increases in a booming housing market, as does the demand for appliances and furnishings. Even more important in terms of dollars pumped into the economy, is appreciated home values, which have been an important source of stimulus over the past few years. Housing sector contributes to GDP in two main ways: through private residential investment and consumption spending on housing services. In times gone by, residential investment has averaged roughly 5 percent of GDP while housing services have averaged between 12 and 13 percent, for a combined 17 to 18 percent of GDP. These shares tend to vary over the business cycle. The construction of the houses has a small portion of the Gross domestic product i.e. $573 bill-lion. Other investments like furniture and household equipments, comprises another 5 percent of GDP. Altogether, currently the h ousing sector comprises 15 percent of the economy. (The American Bureau facts and statistics 2011) Constructing a new home building generates income and jobs for the citizens, as well as becomes a source of revenue for the government. Whereas home building also generates liability for the government and increase their costs by