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For the Writing Assignment, you need to read the article: “Housing Market is Waking up to a New Hangover” by Diana Olick, published on October 2014 by USA Today. The article is posted on Titanium and can be downloaded from the following link: http://www.usatoday.com/story/money/business/2014/10/26/cnbchousing-hangover/17772977/ The article illustrates a number of economic concepts we have discussed in class. You should write a short narrative essay that analyzes the article using the tools developed in class. Below is a guideline on how the essay should be structured: Format 1. The essay should NOT exceed 3-double spaced pages, including graphs. Shorter essays are welcomed. 2. Use 12 point font, and 1-inch margins. 3. A SEPARATE cover page (in addition to the 3-pages) should be provided. The cover page should have your name, semester, and class section. DO NOT include your name on the remaining pages. 4. You DO NOT need a “reference” page unless you use resources outside this article. This is not a research essay so the above article should be your primary source, but you may choose to reference your text, lecture notes, or other articles. If so, you need to cite the references at the end of your essay. 5. STAPLE your essay. DO NOT bind the pages or place them in folders, etc. 6. I deduct points if these rules are not followed. Details are important!! Content Your essay SHOULD address ALL points/questions below and include 3 graphs 1. In the first paragraph introduce your essay, say what you are going to discuss, and reference the article. 2. In the following separate paragraph(s) summarize the main points of the article. 3. In one passage the article reads: “Investors, desperate for yield and fueled by Fed-induced cheap cash, swarmed the most distressed housing markets, buying bargain-basement properties and turning them into rentals.” Discuss this passage by addressing the following points and provide an analysis (in an essay form): a. Using an S-D graph (on a market for housing), show how “investors buying properties” impact the housing market. Does any of the curves (Demand or Supply for homes) shift in this case? Why? Please explain clearly. b. What happens to equilibrium price and quantity of homes when “investors buy properties”? Why? c. What happens to consumer and producer surplus in the housing market when “investors buy properties”? Explain why. Be specific. 4. In another passage the article reads: “Foreclosures have fallen to new lows since the crisis…” Discuss this passage by addressing the following points and provide an analysis (in an essay form): a. Using an S-D graph (on a market for housing), show how a decline in foreclosures has impacted the housing market. Does any of the curves (Demand or Supply for homes) shift (because foreclosures decline)? Why? Please explain clearly. b. What happens to equilibrium price and quantity of homes due to the decline in foreclosures. Why? c. What happens to consumer and producer surplus in the housing market because of “a decline in foreclosures”? Explain why. Be specific. 2 5. In another passage the article reads: “Prices soared again between 2011 and 2013 due to the Federal Reserve’s intervention; it bought billions of dollars worth of mortgage-backed bonds and pushed the average rate on the 30-year fixed to a record low.” Discuss this passage by addressing the following points and provide an analysis (in an essay form): a. Using an S-D graph (on a market for housing), show how Federal Reserve policy to buy mortgagebacked securities (which lowers mortgage rates) impacts the housing market. Does any of the curves (Demand or Supply for homes) shift? Why? Please explain clearly. b. What happens to equilibrium price and quantity of homes because of the Federal Reserve policy? Why? c. What happens to consumer and producer surplus in the housing market because of Federal Reserve policy? Explain why. Be specific. 6. Based on your understanding of elasticity, which of the market do you think has a higher elasticity of demand: buying a house/apartment or renting a house/apartment? Provide a brief explanation on your essay (a short paragraph will suffice). 7. Write your conclusions in one last paragraph. Grading and Other Considerations 1. Your paper will be graded based on the following criteria: a. The quality of your writing (separate from the quality of your analysis). b. Grammar, spelling, sentence structure. c. The quality and depth of your analysis, d. Your demonstrated ability to relate and apply the materials discussed in class to the news story 2. The DEADLINE to submit the paper is May 9. If you would like to get feedback and a chance to revise your paper, you may turn in a first draft on April 25th at the latest, allowing time for review/revisions. 3. The paper is graded out of 100 points and is worth 12% of your grade 4. NO LATE PAPERS WILL BE ACCEPTED. 5. The quality of the paper matters, not quantity. Please make sure that your sentences are complete, coherent and grammatically correct. 6. You need to hand me A HARD COPY of the paper. Electronic submissions are NOT ACCEPTED. 7. Make sure that you do YOUR OWN WORK and use YOUR OWN words when developing the essay. You should by no means copy somebody else’s paper – either your classmate’s paper, or the papers that you use as a source of information. Copying violates the university honor system, and will be punished accordingly. 3 General help with the paper 1) Write a CLEAR intro to the paper. What is this essay about? What will you discuss? Be brief and to the point without meandering too much, but give enough info so that the reader knows what the main points of the essay are. 2) When discussing the first graph (on investors), keep in mind the following: what is the impact on the housing market if people (in this case investors) buy more homes? Think about this and link it to whether this shifts Demand, Supply or both. 3) When discussing the “foreclosure issue,” you need to first understand what a foreclosure is. You can google this to get e better definition, but in a nutshell, a foreclosure happens when people are unable to make mortgage payments and the bank takes away the house. The banks then owns the house, but the bank does not sit on the property, but tries to sell it. This is what happened during the housing crisis: there were too many foreclosed properties that banks tried to sell. What do you think the impact on an increase in foreclosures have on the housing market? Does it impact supply? Demand? Both? The question you have to analyze is about a decrease in foreclosures (so the opposite of the above exercise). So if there is a decrease in foreclosures, what happens in the housing market? Which curve shifts (D, S or both)? Which way? T 4) When discussing Fed policy; you need to understand the link between mortgage rates and buying a home. The housing market is more unique than others because buying a home requires most people to take out a loan since very few can purchase a home in cash. So when you buy a house you care about both the price of the house and the prevailing mortgage rate. If mortgage rates are low, how does this impact the housing market? That’s how you should think about discussing this point and drawing the graph. 5) When thinking about elasticity between buying or renting, think along the following lines? Which is a necessity: buying or renting? Which has more close substitutes: buying or renting? This should give you a clue as to which demand is more elastic.
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