Why Didn’t Housing Prices Budge After the 2008 Crash?

The definition of a market “crash” is that prices will plummet. And they did. In my market, post-crash prices were at their lowest in most areas in 2010 and 2011, and they were 25–50% lower than they were in 2007. Since 2012 prices have now just about doubled.

Housing prices are driven by one very basic economic principle: supply and demand. When supply exceeds demand, prices come down. When demand exceeds supply, prices come up. Absent artificial (government) controls, this economic principle holds true whether you are talking about housing, cars, bananas or bread. It holds particularly true when you are talking about something everyone needs, as opposed to something some people want but not everyone needs.

Everyone needs housing. Rent prices track with the same principle. If more people need to rent than the available supply of rental properties, rents go up. If supply exceeds demand, rents go down.

Housing (shelter) is a necessity and something everyone needs. Therefore, it is more sensitive to short-term economic swings, and is tied largely to local labor markets. When everyone is doing well, more people start buying homes, and this exerts upward price pressure. When more people are unemployed, or earning less, and therefore unable to buy homes, this exerts downward price pressure.

Sigh, I wish everyone understood the theory of basic economics and what drives housing prices. Please, don’t blame your Realtor or society or the seller if that lovely but expensive Tudor you have your eye on exceeds your budget or, if selling, when prices move in a direction that don’t suit you! We don’t control the market, we work as a part of the market to help our clients buy and sell. We are, in fact, the “market makers” of real estate. Our presence simply establishes a reliable system for buying and selling (i.e. matching buyers with sellers) regardless of current price trends. The market itself dictates current prices and the required negotiation strategies to navigate current market conditions. We advise based on our experience of different types of market conditions, but we all wish our clients would heed our advice and better understood the basic economic premise behind it.



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