Home Building Economic Profile

Home Building Economic Profile

Jennifer Myers

Western International University

ECO/301 Economic Theory

Gloria Pearson

March 1, 2007

The home building industry can be a profitable business but the success in home building does not come without difficulties. Construction materials continue to rise in cost more than inflation. Hurricane Katrina and other storms had an affect on these high prices. This did not have an impact on the markets for materials or labor. Many people who lost their homes and evacuated are likely to resettle elsewhere, adding to demand for housing, retail, consumer services, and some public construction in a variety of other states. Some intend to return and rebuild, which increase the supply and demand for not only rebuilding of homes but also an increase in new construction and the sales of the real estate market. Material prices rise faster than the overall rate of consumer or producer prices.

The illustration that accompanied Marshall's origi...

Perfectly inelastic demand

Perfectly elastic demand

The rate of increase for construction materials and components prices could be closer to the 10.1 percent rate of 2004 than the 6.1 percent rate of 2005. However, prices are likely to vary greatly by type of material and project. With rising cost of materials and the small rise in wages, we can clearly see this by looking at the cost outlook of construction. (Simonson, 2006)

Home builders are eager to rebuild after Hurricane Katrina. Several southern states affected by the hurricane face hurdles in the road to recovery. Many houses were damaged or are non-existent. This has caused a shortage in construction materials, a displaced labor force and new building requirement uncertainty. There are also problems of finding subcontractors still in business after the storm. Supply and demand is inevitable in this crisis and because of the shortages in lumber among...