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I don't know what you are talking about. If there is a shortage in housing, prices go up; if there is an oversupply, prices go down. Credit affects what peopl

I don't know what you are talking about. If there is a shortage in housing, prices go up; if there is an oversupply, prices go down. Credit affects what people can afford and plays a factor, but the basic rules of economics are very much in play with housing.

EliRivers 13y ago
I don't know what you are talking about. I'm talking about the fact that to apply the extraordinarily simple supply and demand model to the price of houses, and expect it to work, is wrong. Other factors are more important. If we were talking about something very cheap and fungible, it would be far more applicable. We're talking about houses. The majority of people cannot afford to buy a house. They don't have enough money. If there was no credit, we'd see a simple supply/demand model at work; I could take 20 percent off the cost of houses, and most people still wouldn't be able to buy them because they don't have enough money, but a few more would be able to, so the demand (or rather, the number of people who want one and can now buy one) would increase. However, there is credit. If I added 20 percent to the price and also arranged to lend people enough money to buy the newly expensive houses, they would sell. If I doubled house prices and lent people the money, they'd still sell. The price of houses is so dependent on the availability of credit that it swamps the simple supply and demand model. Credit doesn't just play a factor; it's the majority of it. They're also a veblen good; the simple supply and demand idea that as prices go up, the demand will drop, isn't just wrong - it's the complete opposite. As prices go up, people want them more; they fear that if they don't buy one now, it'll cost them more in the future ("don't miss the boat" is what often gets trotted out during the housing booms) and/or they think of it as some kind of investment and think they'll make more money since they're going up. The simple model that prices going up leads to demand going down is inverted. This works as they go down in price too; as prices drop, demand drops. Nobody wants to borrow money against something that will soon be worth less than they owe on it. Dropping prices cause their own positive feedback, every drop pushing demand lower, in turn dropping prices further and amplifying the effect; classic boom and bust behaviour. Houses are a veblen good, dependent on the availability of credit to buy. Simple supply and demand is utterly swamped. Look at the last housing boom (and indeed, the ones before it). Was there a massive reduction in the number of houses available? No; in fact, many housing companies were building them as fast as they could and the supply was increasing even as prices bubbled beyond sanity. Did hordes of people who had been living on the streets suddenly decide they wanted to live in houses? No. It was people suddenly able to buy one because someone was willing to lend them the money.

EliRivers 13y ago

I don't know what you are talking about. I'm talking about the fact that to apply the extraordinarily simple supply and demand model to the price of houses, and expect it to work, is wrong. Other factors are more important. If we were talking about something very cheap and fungible, it would be far more applicable. We're talking about houses. The majority of people cannot afford to buy a house. They don't have enough money. If there was no credit, we'd see a simple supply/demand model at work; I could take 20 percent off the cost of houses, and most people still wouldn't be able to buy them because they don't have enough money, but a few more would be able to, so the demand (or rather, the number of people who want one and can now buy one) would increase. However, there is credit. If I added 20 percent to the price and also arranged to lend people enough money to buy the newly expensive houses, they would sell. If I doubled house prices and lent people the money, they'd still sell. The price of houses is so dependent on the availability of credit that it swamps the simple supply and demand model. Credit doesn't just play a factor; it's the majority of it. They're also a veblen good; the simple supply and demand idea that as prices go up, the demand will drop, isn't just wrong - it's the complete opposite. As prices go up, people want them more; they fear that if they don't buy one now, it'll cost them more in the future ("don't miss the boat" is what often gets trotted out during the housing booms) and/or they think of it as some kind of investment and think they'll make more money since they're going up. The simple model that prices going up leads to demand going down is inverted. This works as they go down in price too; as prices drop, demand drops. Nobody wants to borrow money against something that will soon be worth less than they owe on it. Dropping prices cause their own positive feedback, every drop pushing demand lower, in turn dropping prices further and amplifying the effect; classic boom and bust behaviour. Houses are a veblen good, dependent on the availability of credit to buy. Simple supply and demand is utterly swamped. Look at the last housing boom (and indeed, the ones before it). Was there a massive reduction in the number of houses available? No; in fact, many housing companies were building them as fast as they could and the supply was increasing even as prices bubbled beyond sanity. Did hordes of people who had been living on the streets suddenly decide they wanted to live in houses? No. It was people suddenly able to buy one because someone was willing to lend them the money.