“Houses Market still Cooling: analysts”- The Province, November 9, 2006 Can West News Service
http://www.canada.com/theprovince/news/story.html?id=87855260-c921-48ae-ba23-193352f1d347&k=79332
Summary
According to an article “Housing Market still Cooling: analysts” in The Province, the housing market is slowing down even though there was an unexpected increase in housing construction in October. The US housing market has gone down by almost 15% and the Canadian housing market is expected to follow. The main reason is because growth in incomes for Canadians is not able to support the current home prices. House prices are increasing more rapidly than disposable incomes. Higher interest rate is another factor in determining the housing market. The pace of home sales will decline gradually overtime, with Toronto and Calgary showing some signs already. In the last year, sales in Calgary fell 17.7%, while Toronto sales dipped 4.2%. Last month, the pace in construction in urban areas was up by 28.2% in Quebec, 10% in British Columbia and 9.7% in Ontario, however there was a 6.4% drop in the Prairie provinces and 15.7% in the Atlantic region.
Relationship and Reflection
The determination of prices housing markets is an example of microeconomics. We are seeing the interaction between buyer and seller with prices being offered and agreed before a final transaction is made. The demand and supply are factors that determine the value of properties in a market.
When the market demand for houses is high and when there is a shortage of properties then the balance of power in the market shifts towards the seller. This is because there is likely to be greater demand in the market for good properties. Sellers can wait for offers on their property to reach (or exceed) their minimum selling price. When demand for housing is low and when there is an excess of properties available on the market, then the power switches to the potential buyers. They have a much wider choice of housing available and they should be able to negotiate a price that is lower than the published price. When the demand for houses increases, there is upward pressure on market prices.
Often the supply of available housing in the market is relatively inelastic because there are time lags between a change in price and an increase in the supply of new properties. When demand shifts outwards and supply is inelastic the result is a large rise in market price and a relatively small expansion of the quantity of houses traded. As supply becomes more elastic over time, we expect to see downward pressure on prices and a further increase in the equilibrium quantity of houses bought and sold.
posted by Tiffany King @ 1:28 AM
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