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Industry Analysis Case Study

Case Title:

US Housing Market: Waiting for Recovery

Publication Year : 2006

Authors: Sweta Chhaochharia, Kumar Satyaki Ray

Industry: Building Materials and Construction Equipment


Case Code: INA0084K

Teaching Note: Not Available

Structured Assignment: Not Available

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After experiencing a boom for a considerably long period, the US Real Estate started declining from early 2006. The number of new housing projects dropped from an annual rate of 1.535 million to 1.486 million. Meanwhile, the mortgage loans had reduced from a peak of 6.8% on average for a 30-year fixed loan in July to 6.24% in October 2006. The Federal rate remained unchanged at 5.25% from the month of August. There were speculations that the Federal Reserve could cut rates in the coming months if inflation remained under control and the economy flagged. This further slashed down the housing finance loans. All these triggered a recovery but the market so far had not shown any kind of bounce-back activities. Moreover, as the once-booming U.S. housing market came down in 2005-2006, economists debated whether this was a “soft” or “hard” landing and the impact this slowing would have on consumers’ confidence and on the overall economy. This case captures both the up and down trends of the US housing sector. The case further explores the factors affecting the housing sector and whether there will be any recovery in the US housing market.

Pedagogical Objectives:

  • To discuss how the economic factors are related with the real estate market
  • To understand the US real estate market
  • To analyse the volatilities in the US real estate market
  • To debate whether the US real estate market would recover after the downturn started in 2006.

Keywords :  US real estate; United States housing bubble; Industry Analysis Case Study; Economic bubbles; Stock bubble; P / E (price-to-earnings) ratios for houses; National Association of Realtors; Speculation; House price index; Baby boomers; Downtrend in housing; Foreclosure; US mortgage rates; Stock vs house investment; Collapse in housing; Housing wealth

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