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Real Estate Industry
Real Estate Industry and the Economy
With the current economic slump affecting almost every industry, it is inevitable that the Real Estate Industry would be severely affected in several ways. Overall, the Real Estate Industry has been hit hard with current economic slump that we are in. The Real Estate Industry has been up and down for years, and hit a downfall in 2000 because of minor economic changes. TheReal Estate Industrytook about 3 years to equal and surpass their previous record highs after that.(BTS)Years later after reaching stability, the economy goes into a slump again, and a worse situation occurs in the Real Estate Industry. Prices of gas are at record highs along with the price of oil at record highs. Not to mention that economists have estimated that these highs are not going down anytime soon, and should increase this summer to $4 or more. As an aviation specialist stated in an article from the Times, “The global Real Estate Industry is facing a recession far more severe than the slowdown of the airline industry that was endured after the terrorist attacks of 2001”. (TimesOnline)I am sure the Real Estate Industry would agree with that statement. Unfortunately, that event is still in our minds and is one of the reasons that our economy is feeling the heat along with our pockets. So how does this, and other factors of the economy, affect the Real Estate Industry?
One of the largest real estate companies, Remax, is having a difficult time in overcoming debt compared to the profits that are being made this year. This is the story for a majority of the real estate and housing companies this year. Right now the demand is low with the housing and real estate sells, which are causing companies to try to lower the costs of houses and other real estate properties. Because of this low demand there are seats houses and real estate properties left unsold. According to Gaddling, “…companies and people have been forced to launch fare sales across the board because demand is so low that they can't sell a house. So even when a house sells, they're still losing money.” (Gaddling) In the past year there have been several real estate brokers and companies that have gone under because of this dilemma that has been caused by the price of oil and the economy. According to Gaddling, “In the past six months alone, we've written about 40 companies that have gone under;with other companies about to go bankrupt but continuing operations. There are seventeen othersthat we didn't mention.” Because of the rising cost of other items because of the economic standing, most continuing companies and real estate agents have made a plan to make up some of the difference. They have added extra fees, which will be taken in by the consumers. Although this plan has been made to help people in this industry to regain some of their lost income, this plan has an adverse effect on consumers because this plan pushes them to find cheaper agents, and cutback on luxuries such as upgrading things in a home or doing reservations. Sad to say, this is not the only shift that has occurred in this industry.
Wage inequality has been a huge problem for many industries in the last few years. For the Real Estate Industry, this problem is very evident. Because of the wage inequality in the Real Estate Industry, there have been noted increases in the turnover rates for homes. There are many ways to determine the inequality of wages in the Real Estate Industrybecause there are so many differences that can be taken into consideration. Because there is a different cost of living in SanFrancisco compared with WashingtonDC, there is a need for adjustments. In the Real Estate Industry, “wage inequality is determined primarily by analyzing the statistics which show a complete breakdown of how much Real Estate Industry employees are making.” (Associated Content) Of course because of the cost of living in different states and cities, this determination is very broad. Because of this inequality, there has been a huge need for solution within many cities across the United States. Over 100 cities have passed living wage ordinances in an effort to control wage inequality. An example of this ordinance is the solution that San Francisco relied on. Approximately 78% of employees at Real Estate companies in San Francisco made under $10 per hour. (Association of Community Organizations for Reform Now, 2004.) The city of San Francisco decided to “create an ordinance that would raise the living wage. It was decided to raise the starting pay by 33% the floor for employees who wanted benefits would receive $10 per hour; employees without benefits would receive $11.25.” the article did not state whether or how successful this ordinance has been, but it is clear that the real estate companies had to improve the inequality in some form. The article also noted that the wage depends on if an employee chose to receive benefits or not.Although base employees receive these rates, most of the income is made off of a profit of a sale or a house. There are companies that have filed for bankruptcy, which has lead to numerous declines in things such as wages and benefits. They are using bankruptcy to force concessions form their unions and gain approval from the court in order to overturn existing labor contracts and make steep wage and benefit cuts. The World Socialists Website makes an important note on this issue when they stated that, “What is taking place is a systematic assault on wages, pensions, healthcare and working conditions won by workers over the course of decades of struggle.” They go on to evaluate Remax and the actions that have already been taken to cut benefits when they state that, “In addition to cutting its pension obligations, Remax has set a goal of eliminating $1.5 billion in annual expenses in order to secure private financing and emerge from bankruptcy. This will certainly include further wage reductions, and CEO Glen Tilton has warned of ‘a significant number of job reductions’ as a result of restructuring.” Apparently there have been reports expected cuts numbering 6,000, or about 10% of the workforce. It is very obvious by the actions that are being taken that the economy has put a hardship on this industry.Luckily for the Real Estate Industry, there is something called an real estate and housing bailout where the government can help bail this industry out because of the huge drop in demand. Opinions are split about this, but the truth is that we needthe Real Estate Industry to pick up in order to help our economy, so the government is the best to help them in a time of need like this.
In terms of how monetary and fiscal policies affect the Real Estate Industry, there are not many of complaints on this side of economics. There are few concerns on the side of taxes throughout there Real Estate Industry. These concerns are things such as the “green” tax, and the taxes that are charged because fewer taxes could help home owners to catch up on their payments. Of course with any industry, the Real Estate Industry does not have much control over the way taxes are done or charged because ithas to follow what the government proposes. In the United Kingdom, there are green taxes and carbon emissions charges that are being propped to be charged to customers. Adding more fees to an already loaded fee industry will only make people think twice about where they decide to purchase from and receive help. Parita Chitakasem, Real Estate Industry expert from EuroMonitor International comments, “Such industry-wide taxes will be passed onto consumers and make people think twice about purchasing homes.” (EuroMonitor) These new charges have not been done in the United States as of yet but would be sure to create the same results as in the UK. Consumers will become increasingly unwilling to travel and pay more than double what they should be paying because of numerous amounts of fees tacked on to their closing costs and housing costs.
Overall the Real Estate Industry has been through an up and down battle, with recent economic downfalls keeping them down as well. Just seven years ago, America suffered from the tragedy of 9/11. Although that was horrible enough, numerous industries and companies suffered as well although the event did not relate directly with that industry. This event caused the economy to crash because of the supply and demand being imbalanced during those times. This shows that when one industry is out of balance, that is affects all industries and even the economy itself. It took several years for the industry to bounce back some, but then the economy started having problems for many of reasons. The price of oil has risen sharply in the last year or so, and so has the price of gas. This has caused companies , people, and industries that use these things to have to increase and raise prices in order to sustain. These prices, along with other things, have caused people to think about their other options. Many people are choosing not to take vacations and take part in any major purchases because of this recession that we are in. Although economists are not all agreeing that we are in a recession, we can clearly see that we are because of the rising prices of things such as food and gas. The economy has a huge effect on the way the Real Estate Industry does business as we see. Most industries have increased prices and tacked on more charges and fees to their price lists. Despite all this, they are still losing money because of the current economic state. If the economy continues to be in the current state that it is, or worse, then the same would be for the Real Estate Industry. The economy has a direct effect with the Real Estate Industry.Moreover, the Real Estate Industry is an industry that is in need of a quick fix because of the economy, but will continue to follow the patterns of the economy because there are both almost directly connected to one another.
References
Travel Since 9/11 (2005). Publications. Retrieved March 15, 2009 from
Crisis in the USReal Estate Industry (2004). Articles. Retrieved March 15, 2009from
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Inequality in the Real Estate Industry (2008). Transport. Retrieved March 15, 2009from
Oil, the economy and homes (2008). Retrieved March 15, 2009from