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Paying Less For a House

Feb 21, 2011 • Demand, Supply, and Markets, Economic Debates, Government, Households, Money and Monetary Policy • 120 Views    1 Comment

In an interesting Politico opinion column, journalist Michael Kinsley wonders why everyone seems to assume that climbing home prices are good. He points out that most people are happy when the prices of essentials like gas go down. So why the opposite for homes? 

After all, the young couple first buying a home wants a low price. The family that is trading up might not want their new home to be priced higher. Only, he says, the retiring couple that intends to downsize or leave the market entirely clearly benefits from higher prices.

Yes, he admits he is oversimplifying. Still, he asks why the media uses pejorative terms for declining prices and affirming adjectives and verbs for rising prices.

Your opinion?

The Economic Lesson

Certain economists might say that the market is the solution and that prices have to fall until the demand side of the market has enough to buy. Other economists, worried about foreclosures, diminished perceptions of wealth, and higher home prices fueling economic recovery believe that government should subsidize the housing market and/or keep mortgage rates low.

You can go to an excellent S&P/Case-Shiller graph here to see where home prices have gone between 1988 and 2010.

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  • zavodnys11

    Rising house prices are a sign of recovery. Interest rates are extremely low, encouraging people to borrow and spend. As more people borrow and can afford to buy houses, the demand increase pushes price up. Rising prices can also signal inflation. Eventually, interest rates will need to come up in order to avoid too much inflation. However, since unemployment is high and inflation is currently manageable, Bernanke should keep interest rates low for the time being.

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