Houses - supply and demand

macaque_2

Bulls work out supply/demand on the basis of houses/people. This graph would suggest that their approach is fundamentally flawed.

Looking at the trajectory of these curves, one has to suspect that the elastic is about to snap.

http://www.propertycrumble.co.uk/2010/09/uk-housing-demand-2007-2010/

B_Blank

Very interesting. Great graph thanks OP. Best post I have seen on here in a while and a massive kick in the teeth for all the bulls. Hard to argue with such facts.

geneer

Interesting. Where did you get it from.

DervProf

I suspect the answer from the bulls will be that the reason for a decline in enquiries is due to "mortgage rationing".

What the bulls have then to consider is that their argument of price being a result solely of supply/demand is rather flawed, because funding has to come into the equation.

To be fair, the bear argument that prices will fall when supply outstrips demand doesn't make much sense at the moment, as prices aren't exactly falling through the floor.

The (sold) price of property is not simply a result of supply vs demand, you have to factor in funding availability and sentiment into the equation.

B_Blank

DervProf wrote: »

I suspect the answer from the bulls will be that the reason for a decline in enquiries is due to "mortgage rationing".

What the bulls have then to consider is that their argument of price being a result solely of supply/demand is rather flawed, because funding has to come into the equation.

To be fair, the bear argument that prices will fall when supply outstrips demand doesn't make much sense at the moment, as prices aren't exactly falling through the floor.

The (sold) price of property is not simply a result of supply vs demand, you have to factor in funding availability and sentiment into the equation.

There is a lag before supply and dmeand can take effect on the market. Looks like we can anticipate nice falls from october/november haliwide figures. :T

geneer

DervProf wrote: »

I suspect the answer from the bulls will be that the reason for a decline in enquiries is due to "mortgage rationing".

What the bulls have then to consider is that their argument of price being a result solely of supply/demand is rather flawed, because funding has to come into the equation.

To be fair, the bear argument that prices will fall when supply outstrips demand doesn't make much sense at the moment, as prices aren't exactly falling through the floor.

The (sold) price of property is not simply a result of supply vs demand, you have to factor in funding availability and sentiment into the equation.

Supply is being artificially restricted by unprecedented emergency base rates.

CLAPTON

DervProf wrote: »

I suspect the answer from the bulls will be that the reason for a decline in enquiries is due to "mortgage rationing".

What the bulls have then to consider is that their argument of price being a result solely of supply/demand is rather flawed, because funding has to come into the equation.

To be fair, the bear argument that prices will fall when supply outstrips demand doesn't make much sense at the moment, as prices aren't exactly falling through the floor.

The (sold) price of property is not simply a result of supply vs demand, you have to factor in funding availability and sentiment into the equation.

supply and demand always always always means 'supply' - a willing seller and 'demand' a willing and able buyer; 'able' means that they can afford it - they have the money.


so many people may want a roll royce ; that isn't 'demand' because they don't have the money to be able to afford one

Graham_Devon

CLAPTON wrote: »

so many people may want a roll royce ; that isn't 'demand' because they don't have the money to be able to afford one

Rolls Royce also ration them, by not allowing just any one to have interest free loans at 50p per week to buy one of their cars.

Turnbull2000

Demand could completely fall through the floor, but that doesn't mean vendors will drop the prices they demand. They won't. Ultra low interest rates and the option to rent out will see to that. People simply won't sell for less than they believe it's worth (generally peak or above values) unless forced too.

The only hope bears have is substantial salary inflation. This was, after all, the mechanism of previous UK crashes. But globalisation has killed of the chances of that happening again. So whilst the crash hopefuls are marginalised, owners and investors reap the rewards of ultra cheap mortgages and protected equity thanks to government intervention.

Pimperne1

Turnbull2000 wrote: »

Demand could completely fall through the floor, but that doesn't mean vendors will drop the prices they demand. They won't. Ultra low interest rates and the option to rent out will see to that. People simply won't sell for less than they believe it's worth (generally peak or above values) unless forced too.

The only hope bears have is substantial salary inflation. This was, after all, the mechanism of previous UK crashes. But globalisation has killed of the chances of that happening again. So whilst the crash hopefuls are marginalised, owners and investors reap the rewards of ultra cheap mortgages and protected equity thanks to government intervention.

I think I've mentioned before but just in case I haven't. I was going to transfer my PPR mortgage into a BtL mortgage so that we could move a bit further out into the country it was only after I had completed a few stages that my lender came to me and offered to let me keep an exceptional tracker for up to two years. In two years who knows where the market will be but it is a fairly substantial cushion for anyone who doesn't want to be forced into selling at a price lower than they want.

(Of course in "real" terms I will probably lose a packet!).

pqrdef

DervProf wrote: »

The (sold) price of property is not simply a result of supply vs demand, you have to factor in funding availability and sentiment into the equation.

The housing market is mostly a positive feeback system, not a classical negative feedback system. The main driver of prices is the expectation of future prices. Supply and demand don't get much of a look-in.

Classically, if houses are overpriced, relative to some standard such as incomes, buyers go away, deciding that possession of a house isn't worth that much to them. So the situation is self-correcting.

In real life, when houses are expensive, buyers rush to buy, fearing that things will only get worse. Getting onto the ladder outweighs overpricing.

And when houses are cheap, buyers don't come in and compete to buy, they think they've got time to sit on their hands and wait for cheaper.

As a result, the market is unstable and often in a spiral, one way or the other. Spirals just can't happen in the simple supply/demand model, which proves immediately that the model is inappropriate.