Home Sale Up Because of Declining Prices

A series of very similar headlines caught my attention today:

News writers still don’t seem to get it. Home sales are increasing because of lower prices. Just like televisions, cars, and any other material good, when homes become more affordable, more people buy them. It isn’t rocket science, people.

I for one am thankful for falling prices.

  

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

18 comments:

  1. 1
    MichaelB says:

    You assume cause and effect based on supply & demand principles. However, it is possible that prices and demand both move independently. In fact, rapid reductions in price (which we will soon see, based on how China and Europe are trending) may actually cause buyers to wait on the sidelines and defer purchases. In summary, those articles do not make false assumptions based on speculation.

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  2. 2
    ChrisM says:

    Go back and take a look at the graphs from 1928-1950. We’re in a repeat, as scary as that seems. Worst part is we’re only about at 1930. I don’t know what the powers that be expect to be the WW2 “effect” as I sincerely hope that no one is planning on another war.

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  3. 3
    Macro Investor says:

    Rocket science is actually easy. After all, they were invented in the 30s. We need another analogy. I can’t think of one. Nothing major has been discovered in decades.

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  4. 4
    Macro Investor says:

    By ChrisM @ 2:

    Go back and take a look at the graphs from 1928-1950. We’re in a repeat, as scary as that seems. Worst part is we’re only about at 1930. I don’t know what the powers that be expect to be the WW2 “effect” as I sincerely hope that no one is planning on another war.

    You’re joking, right? Syria and Iran are queued up and ready to go. The next available peace time is a long way off.

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  5. 5
    David Losh says:

    RE: MichaelB @ 1

    I agree we are in a period of false hope. People are buying into an idea of low interest rates, coupled with lower prices must be a good thing. It’s not.

    Low interest rates are bad. The lower prices are real enough, but they are trending lower for the reasons you outlined. We have massive defaults on the horizon. I can’t even imagine what will happen in China when the banks are held to any kind of scrutiny.

    We are in strange times.

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  6. 6
    MichaelB says:

    RE: David Losh @ 5

    Yes, very strange times. But still alot to be thankful for!

    Rate this comment: Thumb up 0

  7. 7
    DanW says:

    RE: Macro Investor @ 3
    It’s not chip design you know…
    (having just had the 40th anniversary of the 4004, it’s not THAT new, but at least newer than rocket science!)
    It’s not nuclear fusion you know…
    Fingers crossed for this one :-)
    or
    It’s not economics you know…
    (given how little anyone actually seems to KNOW about this one, despite how loud most of them shout!)

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  8. 8
    Jonness says:

    From my view on the ground, houses have been absolutely flying off the shelves lately. Prices are plummeting, and all the crazies are rushing in because of the low rates. As bad as it is, it must be lending some kind of support to the market. Just imagine if this was occurring and nobody was buying.

    The beauty of this situation is, we need these people to buy up these houses, just as we needed the nillies to rush in in 08, 09, and 10 thinking they were snapping up bargains, only to later end up in default. If it weren’t so, the charts would have way too steep of a drop, and they would no longer resemble what we saw in Japan. What’s occurring is preordained, and it’s important we adhere to the correct timelines.

    Interestingly, I don’t think I’ve seen the seattlebubble posters this bearish in a very long time. Apparently, people are losing faith in their government, the Fed, and the market’s ability to heal itself of a severe head wound. Mostly though, I think people are anxious about the situation brewing over in Europe coupled with the cartoon-like political situation over here.

    I’ve felt for years that we would return to at least 2003 prices, so that point will represent a major milestone for me. But I hear the bears already calling for 1998 prices. Where will the chaos end. Can you even begin to imagine the carnage that will occur if the Seattle Case-Shiller does roll all the way back to 1998? It’s amazing to think about.

    History is occurring before our very eyes, and we are fortunate enough to witness it first hand. That said, it’s important pay close enough attention so that you don’t become just another guy caught with his pants down.

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  9. 9
    Feedback says:

    I for one am thankful for you, Tim. You’re smarter than those morons who write for newspapers. Why do we even have newspapers anymore?

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  10. 10

    By MichaelB @ 1:

    You assume cause and effect based on supply & demand principles. However, it is possible that prices and demand both move independently. .

    No. Price (mean, median, mode or the price of a single unit) is dependent on demand (as well as supply). You’re doing something which is very common–confusing demand for volume.

    Demand does change over time though, and thus the number of units sold at a certain price will vary over time.

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  11. 11

    By Macro Investor @ 3:

    Rocket science is actually easy. After all, they were invented in the 30s. We need another analogy. I can’t think of one. Nothing major has been discovered in decades.

    CPU architecture design. Just doesn’t have the same ring.

    Edit: I see DanW had the same thought.

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  12. 12

    The topic of this piece reminds me of Tim Russert (RIP) of Meet the Press. He actually once asked someone why the oil companies were making so much money if oil was in short supply! The press is not filled with economics and business majors.

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  13. 13
    David Losh says:

    My wife left me alone for a minute to go to the store. We have a lot of people coming to dinner, for which I’m thankful. It’s a great holiday. I’m cooking the ham, and mashed potatoes, and really that’s all we need, but we have four families each bringing a complete meal.

    What I wanted to point out is that housing units aren’t “any other material goods.” The price, or affordability, or interest rates, or any other media hype has absolutely nothing to do with the value a property has to the buyer.

    I think you have kind of hit on one of the biggest problem in the run up in pricing. When things were going good you could buy and sell a property easily, we bought and sold three. My wife still talks about how we used to just go out, and buy a house, we’ve been married for ten year. It was easy.

    I’ve told her it didn’t used to be that way. It used to be that buying, or selling a house was a big decision, now it’s just another consumer goods? You get online, shop for a house, open some doors, and congratulations you’re a home owner? or are you another sucker? another debt slave sucker?

    The rocket science is how it came to that.

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  14. 14
    MichaelB says:

    RE: Kary L. Krismer @ 10

    You’re right Kary.

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  15. 15

    This is actually a good sign. Buyers are scooping up the lower priced homes that might be
    short sales and foreclosures. The higher number of sales is the most intriquing aspect of this article

    Rate this comment: Thumb up 0

  16. 16

    RE: Johnny Brooks @ 15 – A lot of them are REOs–prior foreclosures.

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  17. 17
    Dweezil says:

    Here’s another one for you.
    Instead of: “Foreclosures/shortsales dragging down prices or preventing the recovery”
    how about: “Foreclosures/shortsales leading the correction”.

    Rate this comment: Thumb up 0

  18. 18
    John Bailo says:

    Hilarious isn’t it?

    We have been brainwashed about the Free Market for 3 decades…but when it actually comes into play, the elites scratch their heads!

    Rate this comment: Thumb up 0

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