Tags: home | prices | supply | demand

Oversupply of Homes Makes Rapid Price Gains Unlikely

By    |   Wednesday, 21 Nov 2012 07:43 AM

Economics starts with the simple idea that prices are determined by the law of supply and demand. Government intervention can cause prices to move from the levels dictated by the laws in the short run. In the long run, the market will eventually adapt to government action.

Those adaptations can be brutal, as they have been in the housing market.

If the government is encouraging consumption, like it did in the housing market before the crash, prices will rise. Suppliers will increase the inventory to meet the increased demand. That happened in the housing market, and there are now more homes than households.

Census Bureau data show that there are about 132 million houses in the United States. That same data set indicates that there are less than 115 million households that could use those homes.

Therefore, there are about 15 percent more homes than are needed in the country. While supply exceeds demand, prices are unlikely to rise.

Recent gains in real estate prices reflect a move back toward fair value. At the peak of the bubble, many homes were overpriced. After several years of decline, the markets in many parts of the country had gone too far in the other direction.

The true value of homes is probably somewhere between peak prices and the lows seen in the recent and painful crash. Homes are about 10 percent above their lows in many parts of the country, and are now where they were in 2003.

Homeowners have experienced a lost decade and could expect another lost decade. We have probably seen the bottom in prices, but recovery to peak prices seen in 2006 will probably take another decade or longer in many parts of the country.

© 2017 Newsmax Finance. All rights reserved.

 
1Like our page
2Share
MichaelCarr
Economics starts with the simple idea that prices are determined by the law of supply and demand. Government intervention can cause prices to move from the levels dictated by the laws in the short run. In the long run, the market will eventually adapt to government action.
home,prices,supply,demand
287
2012-43-21
Wednesday, 21 Nov 2012 07:43 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved