The interrelationship between economy, property and construction markets is dynamic and complex. Our business is not fit with one size, and generalizations can proof to be dangerously vague. The dissimilarities among types of property and geography are brought into focus by the spring commercial real estate index. The index assists economists trace the impact of construction markets on the economy and the impact of economic change on a real estate. In the results that were released by spring in 2007, it is evident that a slower construction market can bring about an economic trend that is broader (Campbell 1989, p54).
Consequently, these trends affect the demand for both office and industrial real estate. Assessment of the variables in the index scores assists economists anticipate and appreciate the efforts that will give a good shape to commercial real estate performance. In a recently conducted survey, it was evident that the entire index slightly reduced over the last six months, but it has remained constant for some time.
Discussion of the topic
It is hard to believe that there is an existing a correlation between the countrys economy and the overall construction market index. While it may be a bit early to recognize the correct relationship between broad economic aspects like the gross domestic product and the index, at the moment, the index is either at the same level or slightly above the measure of the gross domestic product. The rise in domestic output was caught by the index during the early months of the year 2006 and the economic dwindling since then. The scrawny results of the first quarters gross domestic product were presaged by the dip in the index in the month of November 2006. The raise in the index values in the recent years may give a suggestion that the UK economy will soon have a positive growth rate. It is sensible to be sensitive about such analysis, but its performance shall be monitored as the research goes on.
The effect of residential housing on construction markets
It is evident that one of the major factors hindering the UK economic growth has been the house marketing industry. Nevertheless, the current home prices did not drop as much as people expected. On the other hand, house starts declined by 1.49 million units due to the rise of the inventory of unsold homes. This decline had an adverse impact on the previously flamboyant house market industry in the United Kingdom.
The impact of construction market is more evident on the dramatic drop in the scores assessing the impact of the national economy on the house markets. Commercial charter markets are not that full-bodied because improvement of vacancy has reduced over the last quarter, and opportunities of sublease have declined in the recent years. However, the housing industry is continuing to experience increased sales prices as well as rental rates. To add on that, there are other proofs of market strength which includes construction activities, the level of tenant leasing concessions, and high prices for construction sites. All these factors improved over the last quarter (Maisel 1976, p94).
It is evident that even if the economy of the United Kingdom is experiencing problems, the markets of the commercial office are still developing. Most traditional measure of conditions of real estates will confirm this progress. Nevertheless, vacancy and leasing data can be used to detect signs in the construction market that indicates tenants as well as landlords will be aiming at more balanced negotiations towards the end of this decade. The cyclical patterns of the construction market continue to abide by the law of demand and supply increase in rents as well as historically high pricing encourages landlords to add inventory due to tight markets. This provides tenants with a wide variety of choices and as a consequence limits the ability of the landlords to charge higher rents.
Its only occasionally that comments from surveys revealed a direct relationship between the stress of sub prime mortgage, slowing house construction, and the sector of industrial commercial property. According to some economists, the impact of reduced inflation in construction materials cost is not expected to last. These economists expect the costs of these materials to be on the increase. The rise in cost of energy has already been felt and it is definitely going to increase the cost of transporting materials to construction sites. If the government is merely seeing a half-cycle economic rectification, then the underlying pressure on costs of construction will re-emerge later this year.
A reduced price inflation of building materials enabled the investment factor to rise. Researchers have placed todays prices of industrial investment at a premium over construction costs and considered the market for construction sites still to be inclined in favour of sellers.
Nevertheless, little research has been conducted to observe the disparity between sales of existing homes and house sub-markets such as construction of new homes. Findings regarding this disparity between the two sub-markets will avail valuable insight for both agents of house marketing and economic policy makers. It is found out that the home sales market that exists is greatly affected by expansionary monetary policies as compared to the market of new home construction.
Existing homes and new home construction sub markets
Policy makers as well as economists usually monitor the entire economic status by weighing both sectoral data (for example industry production) and aggregate data (for example, inflation, gross domestic product and unemployment) versus appropriate economic policy. When the rates of unemployment are high and economic growth is slow-moving, there will be a need by the central bank to assume expansionary monetary policies. Expansion monetary policies encourage production activities, increase employment rates and raise the consumer confidence.
Consequently, both producers and consumers can enjoy the reduced interest rates to decrease there borrowing costs and increase their expenses on investments. This increase can be achieved with a corresponding increase in the entire gross domestic product. Nevertheless, a number of empirical studies have revealed that goods prices do not instantaneously respond to expansionary monetary policies.
Using the UK data, their research indicates that prices retain their level for a significant period of time. An implication of these results is that the government should retain the expansionary monetary policies for substantial periods to enable lagged alterations in levels of prices to be realized. Hence, such expansionary monetary policies will consequently lead to higher gross domestic product and lower interest rates, and this will positively affect a number of industries in the economy.
According to Friedman (1981, p72), many economists have assessed the responses as well as interactions between many economic aspects on the entire construction market and the economic policy changes little research has been conducted to observe the relationship between the two housing sub markets. It is usually agreed upon that both existing home sales and new home construction get a positive impact from expansionary monetary policies. Nonetheless, the level of the responses may vary between the two sub markets.
As Lauren (2005, p61) asserts, research into the recognition of this response discrepancy should be of use to a number of economic factors such as house market agents and economic policy makers. Due to the fact that construction of new homes comprises of construction activities while existing homes lack such activities, increases in construction of new homes over existing homes will bring about greater combination to total gross domestic product.
Hence, if construction of new homes has a greater impact as compared to that of existing homes, then expansionary monetary policies will have a great impact on the economy because they bring about and provoke an increase in employment and construction activities. Increased new home construction would ease the inflationary pressure on construction market due to an increase in levels of supply to meet the increased housing demand.
In addition to that, if existing homes are going to be affected more by expansionary monetary policies than construction of new homes, relatively employment as well as construction activities would emerge. A decline in new home construction would increase the inflationary pressure on the housing market due to limited supply to meet the higher demand of housing.
To realise the responses and interrelationship between the two sub markets, a cointegration approach is employed. This is a commonly used framework in todays research. This approach is employed to find out the presence of any equilibrium linkage that is long-term between monetary policy and existing home sales and monetary policy and construction of new homes. The vectors of cointegration are then built in hopes of finding out any dissimilarity between the responses and magnitude of the relationship to the monetary policy of the economy.
It is realized that demand for existing home sales has a higher responsiveness to economic monetary policies as compared to the demand for construction of new homes. Therefore, expansionary monetary policies will provoke more inflationary pressure bringing about unemployment as well as less construction activities.
Expansionary monetary policies have a positive impact on both the economy and construction market. Even if there have been many empirical studies that have revealed construction market responses to changes in the economic policies, very few of them have tried to show the differential effect of the policies on the construction sub markets. Talking about these voids within the literature, some research tries to reveal the efficiency of monetary policies on the construction market by dividing the market into existing home sales and new home construction (Cooper 2008, p110).
The information about the efficiency of existing home sales as well as construction of new homes may avail useful insights to both house market agents and economic policy makers. From the paper it can be seen that home sales has a higher responsiveness to economic monetary policies as compared to the demand for construction of new homes. Even if labour market will generally be stimulated by expansionary monetary policies, the augment in employment in the construction market sector will be smaller than if the demand for existing homes was less than demand for new home construction.
Consequently, these trends affect the demand for both office and industrial real estate. Assessment of the variables in the index scores assists economists anticipate and appreciate the efforts that will give a good shape to commercial real estate performance. In a recently conducted survey, it was evident that the entire index slightly reduced over the last six months, but it has remained constant for some time.
Discussion of the topic
It is hard to believe that there is an existing a correlation between the countrys economy and the overall construction market index. While it may be a bit early to recognize the correct relationship between broad economic aspects like the gross domestic product and the index, at the moment, the index is either at the same level or slightly above the measure of the gross domestic product. The rise in domestic output was caught by the index during the early months of the year 2006 and the economic dwindling since then. The scrawny results of the first quarters gross domestic product were presaged by the dip in the index in the month of November 2006. The raise in the index values in the recent years may give a suggestion that the UK economy will soon have a positive growth rate. It is sensible to be sensitive about such analysis, but its performance shall be monitored as the research goes on.
The effect of residential housing on construction markets
It is evident that one of the major factors hindering the UK economic growth has been the house marketing industry. Nevertheless, the current home prices did not drop as much as people expected. On the other hand, house starts declined by 1.49 million units due to the rise of the inventory of unsold homes. This decline had an adverse impact on the previously flamboyant house market industry in the United Kingdom.
The impact of construction market is more evident on the dramatic drop in the scores assessing the impact of the national economy on the house markets. Commercial charter markets are not that full-bodied because improvement of vacancy has reduced over the last quarter, and opportunities of sublease have declined in the recent years. However, the housing industry is continuing to experience increased sales prices as well as rental rates. To add on that, there are other proofs of market strength which includes construction activities, the level of tenant leasing concessions, and high prices for construction sites. All these factors improved over the last quarter (Maisel 1976, p94).
It is evident that even if the economy of the United Kingdom is experiencing problems, the markets of the commercial office are still developing. Most traditional measure of conditions of real estates will confirm this progress. Nevertheless, vacancy and leasing data can be used to detect signs in the construction market that indicates tenants as well as landlords will be aiming at more balanced negotiations towards the end of this decade. The cyclical patterns of the construction market continue to abide by the law of demand and supply increase in rents as well as historically high pricing encourages landlords to add inventory due to tight markets. This provides tenants with a wide variety of choices and as a consequence limits the ability of the landlords to charge higher rents.
Its only occasionally that comments from surveys revealed a direct relationship between the stress of sub prime mortgage, slowing house construction, and the sector of industrial commercial property. According to some economists, the impact of reduced inflation in construction materials cost is not expected to last. These economists expect the costs of these materials to be on the increase. The rise in cost of energy has already been felt and it is definitely going to increase the cost of transporting materials to construction sites. If the government is merely seeing a half-cycle economic rectification, then the underlying pressure on costs of construction will re-emerge later this year.
A reduced price inflation of building materials enabled the investment factor to rise. Researchers have placed todays prices of industrial investment at a premium over construction costs and considered the market for construction sites still to be inclined in favour of sellers.
Nevertheless, little research has been conducted to observe the disparity between sales of existing homes and house sub-markets such as construction of new homes. Findings regarding this disparity between the two sub-markets will avail valuable insight for both agents of house marketing and economic policy makers. It is found out that the home sales market that exists is greatly affected by expansionary monetary policies as compared to the market of new home construction.
Existing homes and new home construction sub markets
Policy makers as well as economists usually monitor the entire economic status by weighing both sectoral data (for example industry production) and aggregate data (for example, inflation, gross domestic product and unemployment) versus appropriate economic policy. When the rates of unemployment are high and economic growth is slow-moving, there will be a need by the central bank to assume expansionary monetary policies. Expansion monetary policies encourage production activities, increase employment rates and raise the consumer confidence.
Consequently, both producers and consumers can enjoy the reduced interest rates to decrease there borrowing costs and increase their expenses on investments. This increase can be achieved with a corresponding increase in the entire gross domestic product. Nevertheless, a number of empirical studies have revealed that goods prices do not instantaneously respond to expansionary monetary policies.
Using the UK data, their research indicates that prices retain their level for a significant period of time. An implication of these results is that the government should retain the expansionary monetary policies for substantial periods to enable lagged alterations in levels of prices to be realized. Hence, such expansionary monetary policies will consequently lead to higher gross domestic product and lower interest rates, and this will positively affect a number of industries in the economy.
According to Friedman (1981, p72), many economists have assessed the responses as well as interactions between many economic aspects on the entire construction market and the economic policy changes little research has been conducted to observe the relationship between the two housing sub markets. It is usually agreed upon that both existing home sales and new home construction get a positive impact from expansionary monetary policies. Nonetheless, the level of the responses may vary between the two sub markets.
As Lauren (2005, p61) asserts, research into the recognition of this response discrepancy should be of use to a number of economic factors such as house market agents and economic policy makers. Due to the fact that construction of new homes comprises of construction activities while existing homes lack such activities, increases in construction of new homes over existing homes will bring about greater combination to total gross domestic product.
Hence, if construction of new homes has a greater impact as compared to that of existing homes, then expansionary monetary policies will have a great impact on the economy because they bring about and provoke an increase in employment and construction activities. Increased new home construction would ease the inflationary pressure on construction market due to an increase in levels of supply to meet the increased housing demand.
In addition to that, if existing homes are going to be affected more by expansionary monetary policies than construction of new homes, relatively employment as well as construction activities would emerge. A decline in new home construction would increase the inflationary pressure on the housing market due to limited supply to meet the higher demand of housing.
To realise the responses and interrelationship between the two sub markets, a cointegration approach is employed. This is a commonly used framework in todays research. This approach is employed to find out the presence of any equilibrium linkage that is long-term between monetary policy and existing home sales and monetary policy and construction of new homes. The vectors of cointegration are then built in hopes of finding out any dissimilarity between the responses and magnitude of the relationship to the monetary policy of the economy.
It is realized that demand for existing home sales has a higher responsiveness to economic monetary policies as compared to the demand for construction of new homes. Therefore, expansionary monetary policies will provoke more inflationary pressure bringing about unemployment as well as less construction activities.
Expansionary monetary policies have a positive impact on both the economy and construction market. Even if there have been many empirical studies that have revealed construction market responses to changes in the economic policies, very few of them have tried to show the differential effect of the policies on the construction sub markets. Talking about these voids within the literature, some research tries to reveal the efficiency of monetary policies on the construction market by dividing the market into existing home sales and new home construction (Cooper 2008, p110).
The information about the efficiency of existing home sales as well as construction of new homes may avail useful insights to both house market agents and economic policy makers. From the paper it can be seen that home sales has a higher responsiveness to economic monetary policies as compared to the demand for construction of new homes. Even if labour market will generally be stimulated by expansionary monetary policies, the augment in employment in the construction market sector will be smaller than if the demand for existing homes was less than demand for new home construction.
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