Supply and demand

nembot

Bootski wrote: »

I know all Bears are not only desperate but probably suicidal right now!!

errrr, nah

chucknorris

macaque wrote: »

Me thinks thou doth protest too much

Why would a 70% fall would "finish the whole country"? House prices have become a serious obstacle to employing good graduates in the UK.

You cannot pretend that a recession causing a 70% fall in house prices would leave the economy in anything but dire straits, virtually every business would be so seriously effected that graduate intake would virtually stop. I graduated in the last recession (1990) so I am fully aware of how recessions can effect graduate employment. Or are you trying to argue that house prices will fall 70% yet the recession will not be bad? If so, that is absurd. Below you are citing a scenario of disposable incomes falling below 1996 levels, how have these incomes fallen so dramatically and yet we are not in a deep recession? In fact you are also suggesting it would be good for graduate employment, how on earth do you arrive at this conclusion?

My proposition is very simple: House prices are more than 300% above 1996 levels. Do you really think they can remain 300% above 1996 levels if disposable incomes fall below 1996 levels? You have had a rant but you failed to answer that.

As I said before you are conveniently selecting the year 1996 when house prices were eventually picking up after the 80's/90's crash. Prices were a similar level in 1992 to 1996 and as that is the mid point (in years) of the last crash that is the more appropriate year to bench mark to. So when inflation is brought into the equation we have 15 years of it. So in real terms they are not 300% above.

The RPI for 1992 was 138.5 and for 2007 206.6 if we use the Halifax index (favours you as it's higher than Nationwide) then the Oct 07 peak prices were 198k (rounded up) and the Oct 1996 price is 66k (rounded up) which as you say (on the face of it) is 300%. However, now apply the RPI indices and we have a 49.2% inflationary figure to add to that 66k, which increases it to 98K. So in fact prices rose by only just over 100% in real terms in the period above, which although is still significant as I say it is starting from shortly after a crash.

So what does this mean for your arguement of prices falling 70%? It means that you are suggesting that the Halifax average price will fall back to below 60k (198k x 30%). That will not happen because that is far too cheap, affordability will never get that low. You have completely (and very conveniently) ignored inflation as well as made a massive inappropriate assumption that somehow disposable income will fall back to 1996 levels.

IveSeenTheLight

zappahey wrote: »

All very ideal world stuff, of course, and completely ignoring sentiment, irrationality, "not selling it for less than it's worth" and all of the other things that distort markets.

Ideal world is not the real world

zappahey wrote: »

You're right that demand can never exactly match supply but, if there is an imbalance, then prices must change to correct that imbalance.

I've never doubted that prices change to reflect the imbalance, that is the real world reflecting that supply does not equal demand

Generali

IveSeenTheLight wrote: »

Ideal world is not the real world



I've never doubted that prices change to reflect the imbalance, that is the real world reflecting that supply does not equal demand

Prices changing is how supply and demand are made equal.

I'm not sure why you seem to find that so hard to understand.

JonnyBravo

Generali wrote: »

Prices changing is how supply and demand are made equal.

I'm not sure why you seem to find that so hard to understand.

How does this work on, for example, a games console like the Wii, which was consistently sold out for the first few years of it's life and would undoubtedly have sold out if the price was higher too?

Genuine question from someone who hasn't studied economics.

Generali

JonnyBravo wrote: »

How does this work on, for example, a games console like the Wii, which was consistently sold out for the first few years of it's life and would undoubtedly have sold out if the price was higher too?

Genuine question from someone who hasn't studied economics.

AIUI, Nintendo (and other console manufacturers) follow a model whereby they look to sell as many consoles as possible and make their money from software sales.

They are looking at the best way to make money over the lifetime of the console.

There are other cases of companies deliberately setting prices below what would be the maximum they could charge to avoid accusations of price gouging.

Neither of these things is the case when an individual sells a house to another individual: if you advertise your house for sale for £1.50 then you're likely to be beseiged by buyers. They'll bid the price of your house up to something more realistic (unless your house really is worth just £1.50 of course in which case you have bigger problems than the arcanery of the theories surrounding supply and demand).

StevieJ

Generali wrote: »

Prices changing is how supply and demand are made equal.

I'm not sure why you seem to find that so hard to understand.

Effective demand is what we are talking about, that is where the banks, credit crunch and QE come in. If the banks put a ceiling on the borrowing who gets the house? assume FTB (all equal status and many buyers chasing limited houses) is it the one who is willing to pay the higher interest rate to secure a higher mortgage e.g. 90% LTV.

CLAPTON

The theory of supply and demand is an attempt to explain how the price of many fairly similar objects with many potential buyers, is determined in a free uncontrained market.
In was never intended to throw light on how the price of a single item is determined.
Once you have established the supply - demand curves then you can better understand how changes in the outside environment will affect the average price (i.e. changes in VAT or windfall taxes or government subsidy etc).
However the supply-demand curve doesn't provide much insight into the price of a specifc item.

If you wish you can use the words supply and demand and debate how they really do apply to a specific single object but in my view adds nothing in terms of understanding.
The price of a specifc item is much better understood by looking at the local situation... so in a charity auction an eveyday object may well fetch a high price but it tells us nothing about what that object would sell for on the high street.

IveSeenTheLight

Generali wrote: »

Prices changing is how supply and demand are made equal.

I'm not sure why you seem to find that so hard to understand.

I've already said I agree that the amount of buyers must equal the amount of sellers.
I still don't agree that supply must equal demand.

1) My wife tried to buy tickets for the X Factor and found the venue sold out.
2) Every year there are people queued up to get into Wimbledon on peoples Sunday, not all get in.
3) At St Andrews Golf Course, they hold ballots to see who will be able to play the Old course, this is because they always have more demand than they can allow to play.

These are examples where demand is greater than supply.

1) I watched highlights of Bolton versus Portsmouth at the weekend. The stadium was less than half full.
This is an example of where the supply was greater than the demand

All of the above are examples of where supply and demand do not match
I'm not sure why you seem to find that so hard to understand :rolleyes:

StevieJ

IveSeenTheLight wrote: »

I

1) I watched highlights of Bolton versus Portsmouth at the weekend. The stadium was less than half full.
This is an example of where the supply was greater than the demand

All of the above are examples of where supply and demand do not match
I'm not sure why you seem to find that so hard to understand :rolleyes:

The supply was only greater than the demand at that price, drop the price and supply/demand theory says that demand would increase.