Thank You, Alfred Marshall

July 27, 2009

by Mario Rizzo  

This is not the whole story. But it is reassuring to see that the Great Recession has not repealed the elementary Law of Supply and Demand.  From the Christian Science Monitor:

“Sales of new homes in the United States rose to their highest level in seven months, providing one of the strongest signs that the decline in the residential construction industry may be over.

But to achieve that stabilization, home builders are continuing to lower prices to lure new buyers – a phenomenon taking place in real estate markets around the world.

In June, the sales of new US homes jumped a higher-than-anticipated 11 percent from the level in May, the Commerce Department reported  Monday. The new report suggests that the home-building industry is nearly halfway back to its June 2008 level of sales, after hitting a record low in January (seasonally adjusted).

The problem is that the sales prices continue to fall. In June, the median price of a new home fell back to $206,200, down from $219,000 in May and not much better than the multiyear low of $205,100 in March. Prices for new homes haven’t been this low since December 2003.”

 

5 Responses to “Thank You, Alfred Marshall”


  1. Ahh, a fresh dose of price deflationphobia to go with my morning. At one time the prospect of cheap goods was a delight instead of a threat.

  2. Mario Rizzo Says:

    Of course, characterizing the price decline as a “problem” is the Christian Science Monitor’s opinion, not mine.

  3. josil Says:

    The CSM has observed a fact but I doubt that they have derived any intelligence from it.


  4. Mario is right. Add to Marshall’s analysis is one taking into account speculative demand. Here is a piece appearing in tomorrow’s WSJ. http://online.wsj.com/article/SB10001424052970203946904574300520224287120.html


  5. It’s definitely difficult to forecast the end of the bubble. I’ve a friend who says that it’s probably not a bubble since he thinks demand would pick up when young adults really begin to move out to look for homes of their own. I wasn’t aware there was a state financial agency which routinely bails out its banks regularly.


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