Is There Another Housing Bubble Building?
May 3, 2019 | Calvin Schnure | Nareit
Housing markets present a classic chicken-and-egg problem. Do price trends determine construction and the supply of new homes and apartments, or do the supply and demand conditions set prices? Any economist will tell you, of course, that they are determined jointly, as prices do influence supply and the supply-demand balance does affect prices. But there are times when it is clear that one of these forces is in the driver’s seat and the others follow.
The housing boom in the mid-2000 is a clear example of prices driving the market. Rapidly rising house prices, and the expectation that prices would continue to climb, fed a speculative boom in homebuilding. Such hopes, unfortunately, were overdone, and the resulting glut of new homes led to a subsequent price collapse and the housing and mortgage crisis that followed.
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