“U.S. Home Prices Rose 5% in July” The New York Times

Summery In July 2015 home prices rose as a response to increased demand for homes. American consumers’ confidence in the economy had improved leading to more demand for homes. This demand resulted in an increase in home prices. This rise in prices, in some ways, improved the housing market, but it also shuts many would be buyers out of the market.

Three Main Points Consumers confidence in the economy improves, leading more people to buy houses Rise in demand leads to a rises in prices The new high prices potentially shut would be buyers out of the market

Improved confidence in the Economy leads to Increase in quantity of homes demanded “Steady job growth and an economic recovery … encouraged more Americans to buy homes.” This is essentially a change in tastes that will shift the demand curve outward The Housing Market can’t quickly change quantity in response to demand. Therefore, in order to reach market equilibrium, prices were raised to reduce the quantity of homes demanded. “Home prices in the United States rose at a solid pace in July, as would-be buyers competed for a diminished supply of available housing” Rise in Home prices

Supply and Demand of Homes Q P The people that fall on this part of the new demand curve are those that are shut out of the market The new demand curve shifts out, but suppliers can’t increase quantity so they increase price for every quantity demanded to reach market equilibrium

Income and Substitution Effect “Consistent price gains can make homeowners feel wealthier and more likely to spend, providing a boost to the economy.” Rises in home prices increase the value of people’s homes/decrease the weight of mortgages, making people feel wealthier Income effect: people feel wealthier they might chose to buy more homes instead of renting Substitution Effect: people shut out of market are those where substitution effect dominates

Market Demand Curve “buyers have bid up prices in many areas because the number of homes for sale remains limited.” “Prices are rising at more than double the rate of wages … probably pricing many would-be buyers out of the market.”