Article Review

Article Review

Introduction

The Housing Wealth Isn't Wealth provides a simple rational when It explains the straightforward argument that whenever there is an increase in the prices of the household, the economy does not become better off. When one analyzes this statement, it can be seen that this argument holds relevance when one talk about the way policies are chalked out. The basic idea is that over dependence and over reliance on the prices of the assets is not a really good idea.

The argument that is presented in the article compares the prices of the housing units to that of coconuts, the only difference being that unlike coconuts, housing units are durable units. The article gives an example that if a country is an exporter of coconut, if there is an increase in the price of the coconuts then it would not be really benefitting us.

Discussion

If we are not exporting coconuts, then increase or decrease in the price of the coconut would not really impact us. Author compares this situation to that of housing units that when there is an increase in the price of the household units, it is not likely to make economy really better as most of the people are consuming household services simultaneously. The article presents a logic that if there is any increase in the price of households is simply a transfer of value from a younger generation to the older generation. It must be taken as a transfer of wealth from those who don't have housing units to those people who have their own housing unit (Iacoviello, 2011).

Decline in the prices of the house holding units is taken as one of the prime reasons for slowdown in the economy of USA. The situation is bit different in Europe thought as long years of rise in the prices, but this spell has culminated due to the fact especially in the region of Ireland, Spain and United Kingdom (Buiter, 2008). The common perception is that when the prices of the housing units are declining, there is an underlying affect on aggregate demand. There are two reasons for this impact on aggregate demand; the first reason is that with the change in the prices of the housing units, the investment that is carried out in the household units is lowered. Another reason is that there is always change in the private consumption when there is change in the prices of the household units.

There are many ways through which the real estate and the housing sector contribute to the economy. There is a direct contribution that comes in the form of the services that are granted in the form of construction and home improvement. They are big industries in their own right. Then there is contribution from the consumer spending that is driven from the housing wealth effect. This is most common when borrowers are tapping their funds into their home equity and they fund everything even if it's a home ...