By:Dennis Norman
I am not an economist and don’t have a PhD…in fact I think the closest I ever came to an academic course in economics was a business management class in high school. However,having said that,I think it is pretty clear that what is going on in the housing market now is a basic law of economics called “supply and demand”and perhaps by the latest statistics these two parties,which have been strangers for a while,are now getting reacquainted.
For starters,let’s look at the definition of “supply and demand“. Wikipedia.Org defines it as: “An economic model based on price and quantity in a market. It predicts that in a competitive market price will function to equalize the quantity demanded by consumers,and the quantity supplied by producers,resulting in an economic equilibrium of price and quantity.”
I think the current real estate market is proving this theory and it appears perhaps we are seeing some “equilibrium of price and quantity”. The first part of this theory deals with price. There is no doubt real estate prices have been dropping,in fact as the S&P/Case-Shiller report which was just released for November shows,prices have continued to drop in the 20 metro markets covered. The drop in price from October to November was a little over 2% overall. The drop in price from November 2007 to November 2008 was 18% overall with the Dallas seeing the smallest decrease at 3.3% and Phoenix seeing the highest at 32.9%.
Prices dropping has definitely been affecting the “quantity supplied by producers”with the producers being builders. As I discussed in a post a couple of days ago,permits for new homes are down 36% in the past year. So clearly prices are affecting production.
Yesterday the National Association of REALTORS(R) released it’s existing home sales data for December and to the surprise of many,it shows an increase in sales. Nationwide sales were up 6.5% over the prior month and equally good news is that the inventory of existing homes for sale dropped almost 12% from the month prior and over 7% from the prior year.
I have thrown out a lot of data but to do a quick summary,here is where the market is according to all this:
Maybe,just maybe,could we be seeing an equilibrium of price and quantity? Let’s hope.
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