Economics and Housing the Wall Term Paper

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Even though the housing market is slowing, the article speculates that it may take six to eight months before sellers accept that the market has softened and reduce their prices. This demonstrates the economic theory that the supply relationship is a factor of time. Suppliers do not always react quickly to a change in demand or price, but eventually they must. The article suggests that demand will decline 3.5% next year, but that median home prices will still increase by 5%.

Suppliers are beginning to react to falling demand through a decline in price increases and incentives which are really indirect price decreases. That's why this is referred to as a "cooling off" period in the article which mentions that some condo buyers are being offered a car to make a purchase of a condo. The use of incentives may be viewed by the suppliers as a way to mask the fact that prices are falling. They are trying to hide the fact that market power has switched away from sellers to buyers. This change in power will only motivate potential buyers to negotiate a price that is far lower than the published price.

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And, suppliers may be hoping that demand will pick up. If it does, it's easier to take away the incentives than to adjust prices.

Buyers expect that prices will fall further as demand decreases. Therefore, according to the article, they are now delaying their purchases or at least avoiding over-priced purchases. As a result, we're seeing sharp falls in the quantity demanded in over heated areas such as the West Coast where home-purchase contracts were down 14% in October, 2005. Demand isn't falling as much in other areas where housing appreciation hasn't been as astronomical.

The Wall Street Journal article does not discuss when or if housing prices will actually begin meaningful decreases, but economic theory suggest that the market will move towards equilibrium, a point when supply and demand are equal. How long this will take is the $20 million question, leading to debates over whether there will be an eventual housing crash or a more gradual market adjustment and speculation about how specific regional markets will fare......

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"Economics And Housing The Wall" (2007, January 06) Retrieved June 4, 2026, from
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"Economics And Housing The Wall", 06 January 2007, Accessed.4 June. 2026,
https://www.aceyourpaper.com/essays/economics-housing-wall-40724
   

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