More WSJ Doubts
The WSJ has a story today about home buyers who are trying to get out of their contracts. It's a pretty interesting article, but this passage jumped out at me:
Newly constructed homes make up only about 15% of total home sales. But a wave of building helped fuel the run-up in housing prices during the real-estate boom, especially in Florida and California.
[me again] So this seems like an... unorthodox model, in which an increase in supply led to increased prices. One would normally expect the opposite causation - the higher prices would be expected to lead to a wave of building. The wave of building should, other things equal, lead to lower prices.
I actually think I could come up with a coherent model in which this makes sense, but I don't think there's any way such a model would describe the real world.
Newly constructed homes make up only about 15% of total home sales. But a wave of building helped fuel the run-up in housing prices during the real-estate boom, especially in Florida and California.
[me again] So this seems like an... unorthodox model, in which an increase in supply led to increased prices. One would normally expect the opposite causation - the higher prices would be expected to lead to a wave of building. The wave of building should, other things equal, lead to lower prices.
I actually think I could come up with a coherent model in which this makes sense, but I don't think there's any way such a model would describe the real world.
posted by James | 11:55 AM
1 Comments:
The causation is backwards. Basically it takes times for homes to be built and put on the market, and so there is a lag between demand and the actual price of homes. If a lot of homes are being built now, it's because demand is high NOW and projected to increase, but by the time they're ready to sell demand could have fallen, adding to the price crunch. Also the market is not particularly liquid, so it reacts slowly to new information.
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