The Housing Sector Crisis and the Possibility of a Double Dip Recession

The liquidity shortfall in the United States banking system resulted in the collapse of large financial institutions and other business firms. This in turn created a domino effect triggering the worst economic recession in the modern era with many countries including major players deeply affected. Because of this, the economies of other countries have significantly slowed as international trade declined and confidence in spending has slowly diminished. The U.S. also incurred a very large budget deficit that threatens the country’s stability in the future.

The home and housing sector is obviously one of the most affected by the recent economic and financial crisis. There was widespread foreclosure as prices of house loans and interest rates soared up. In April this year, the number of home sales went down due to the expiration of federal tax credit given to buyers. Experts and economists are now deeply worried about the possibility of the double dip recession since the economy and the housing market are two different entities that worked with each other.

The fall of the housing sector can greatly affect the stability of the economy and the stimulation of economic growth. According to West Chest, Pennsylvania-based Moody’s Analytics, 15 percent of the gross domestic product during the second quarter was attributed to home construction materials and home furniture and appliances. Also, the housing sector may also influence consumer spending by enabling consumers to receive extra money to buy more goods. In the mid 2000’s, consumers used the equity of their homes to purchase automobiles and take on a holiday vacation.

With over 14.6 million Americans having no work or going underemployed, homeowners are struggling to cope up with their housing loans or in paying for their ownership of properties. Figures showed that one in seven mortgages resulted in foreclosure in the first quarter. Although Pres. Obama has already implemented the Home Affordable Modification Program, there are still a lot of instances where the consumer defaulted on the loan. The unstable economy has forced homeowners to default and instead chose to save more money for future use.

Previous economic recessions make use of the housing sector to generate economic growth and encourage consumer spending. That is not the case today as people are losing hope with fewer jobs available in the market. If the housing sector continues to fall with little positive effects done by Obama’s Home modification program, the country may well be experiencing a double dip recession resulting in negative economy growth. The government must act now and take on the right decisions to be able to steer the economy from other crisis waiting to happen.