Monday, June 04, 2007

Housing Update, June 2007

Orange County’s own Calculated Risk blog provides a comprehensive Housing Update, June 2007
“Here are a few simple facts:
• Housing inventories are at record levels, in both absolute terms, and as a percent of owner occupied units.
• Households are already dedicating a record percentage of their income to mortgage obligations.
• Banks are tightening mortgage-lending standards.

So what will happen to the housing market? For normal markets, these facts - excess supply, falling demand - would foreshadow falling prices. But, for housing, prices are sticky because sellers tend to want a price close to recent sales in their neighborhood, and buyers, sensing prices are declining, will wait for even lower prices. But sticky doesn't mean stuck. Prices are now falling by most measures, and will probably continue to fall. However, in a typical housing bust, prices tend to fall slowly over several years - so buyers wait, and transaction volumes also decline.”

You can read the whole blog entry here. “In conclusion, the outlook for housing remains dismal” and this puts a damper on the outlook for the macro economy.

Summer Session Extra Credit:
Read the entire Housing Update, June 2007 on Calculated Risk. Is the analysis an example of positive or normative economics? (See Chapter 2 in Krugman and Wells) Justify your answer. If you are the first Summer Session student to send me an e-mail at with the answer, you will be rewarded with two extra credit Discussion Board points. Only one blog extra credit question per student can be answered in any given week for Discussion Board extra credit.

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