for ANANDH ONLY

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California State University, Fullerton Professor Farka, Ph.D.

Department of Economics Economics 201

Writing Assignment

First Draft: NOT MANDATORY: May 1

Final Draft: MANDATORY: May 15

For the Writing Assignment, you need to read the article: “The Great Housing Rebound of 2012: How the Fed

Helped Sellers Beat the Odds” published on December 27, 2011 by the Times Magazine. The article is posted on

Titanium and can be downloaded from the following link:

The Great Housing Rebound of 2012: How the Fed Helped Sellers Beat the Odds

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 Times
article.

2. In the following separate paragraph(s) summarize the main points of the article.
3. In one passage the article reads: “Rising home prices allow lenders to be more generous with home

financing, which allows even more prospective home buyers to access the market, further driving up home

prices.” 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 “lenders being more generous with home
financing” impact the housing market. Does any of the curves (Demand or Supply for homes) shift

“when lenders are more generous” and why?

b. What happens to equilibrium price and quantity of homes when “lenders are more generous with
home financing”?

c. What happens to consumer and producer surplus in the housing market when “lenders are more
generous with home financing”?

4. In another passage the article reads: “Record low mortgage rates, primarily (though not exclusively) due to
the Fed’s decision to buy up mortgage-backed securities, have done much to boost home prices.” 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 “the Fed’s decision to buy up mortgage-
backed securities” has impacted the housing market. Does any of the curves (Demand or Supply for

homes) shift (because of the Fed policy) and why?

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b. What happens to equilibrium price and quantity of homes due to the ” the Fed’s decision to buy up
mortgage-backed securities”?

c. What happens to consumer and producer surplus in the housing market because of “the Fed’s
decision to buy up mortgage-backed securities”?

5. In another passage the article reads: “there is reason to be concerned that distressed home sales — like
foreclosures or short sales — will hamper the housing recovery in 2013.” 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 an increase in “foreclosures” impacts the
housing market. Does any of the curves (Demand or Supply for homes) shift and why?

b. What happens to equilibrium price and quantity of homes because of an increase in “foreclosures”?
c. What happens to consumer and producer surplus in the housing market when “foreclosures” rise?

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.

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 15. If you would like to get feedback and a chance to revise
your paper, you may turn in a first draft on May 1 at the latest, allowing time for review/revisions.

3. The paper is graded out of 100 points and is worth 15% 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.

TheGreat Housing Rebound of 2012: How the Fed Helped Sellers Beat the Odds

by Christopher Mathews

Without a doubt, the U.S. housing market has been the most successful sector of the

economy this year, and Wednesday’s Case-Shiller home-price index report — which

showed a fifth consecutive month of year-over-year increases in home prices nationwide

— was a late Christmas present for homeowners across the country.

The housing-market “bottom” was one of the biggest business stories of 2012. After

years of falling home values, the data clearly showed that the bleeding stopped

somewhere in the first part of 2012 and that home prices have actually begun to slowly

rise since then. In addition, other indicators like housing starts, new home sales and

foreclosure statistics all point toward a healing housing sector.

These dynamics have gotten some economists and market analysts excited about the

growth prospects for the U.S. economy in 2013. Robert Johnson, director of economic

analysis for Morningstar, called housing “the big change factor in 2013″ and believes that

“direct housing investment will be a meaningful contributor” to economic growth in

2013. He also sees industries related to housing — like furniture manufacturing and sales

— adding to economic growth in 2013 as the housing market begins to pick up.

There’s no doubt that we’re finally seeing the beginnings of what economists call a

positive feedback loop when it comes to housing. Rising home prices allow lenders to be

more generous with home financing, which allows even more prospective home buyers to

access the market, further driving up home prices. And higher home values give

consumers and builders more confidence to go out and spend money or make

investments, which also stimulates the real estate market and broader economy.

But with all this enthusiasm for the housing-market recovery, it’s important to take

a step back and think about the real driving force behind rising home prices.
Jonathan Miller, president and CEO of the real estate appraisal and consulting firm Miller

Samuel Inc., astutely asks the question of how home prices can rise in an environment in

which unemployment remains high, there is little growth in take-home pay, taxes seem

poised to rise and lending standards continue to be tight.

One of the answers to this riddle, according to Miller, is the Federal Reserve. Record low

mortgage rates, primarily (though not exclusively) due to the Fed’s decision to buy up

mortgage-backed securities, have done much to boost home prices. Last month I wrote

about an analysis done by Tim Iacono of Iacono Research that illustrated just how

significant Fed stimulus efforts can be when it comes to home prices. He showed that

today’s superlow rates can enable a home buyer to purchase a house that is 50% more

expensive than she would have been able to afford under the average mortgage rates over

the past 20 years.

(MORE: Is Freddie Mac Betting Against the American Homeowner?)

In addition, there is reason to be concerned that distressed home sales — like foreclosures

or short sales — will hamper the housing recovery in 2013. Miller notes that distressed

home sales began to increase yet again in the second quarter of 2012, as banks started to

ramp up their foreclosure mechanisms after the resolution of the robo-signing scandal

earlier this year. Homes sold under these conditions are usually done so at a steep

discount, and large amounts of distressed properties on the market will drive down home

prices more generally.

This is not to say that the recent trend of rising home prices isn’t a good thing. It’s very

difficult to imagine a significant economic recovery in an environment of falling real

estate prices, as a house is most Americans’ single most significant asset. But any sober

analysis of the recovery must admit that Federal Reserve stimulus is probably the single

most important factor driving rising home prices. And until we see a significant drop in

unemployment, or a significant increase in wages, we won’t get a housing-market

recovery that can sustain itself without unprecedented intervention from the central bank.

Read more: http://business.time.com/2012/12/27/housing-numbers-recovery-

fed/#ixzz2ORtHCGPZ