"Gloom. Doom. Calamity. Home prices are tumbling. We're bombarded by somber reports. But wait. This is actually good news, because lower home prices are the only real solution to the housing collapse. The sooner prices fall, the better. The longer the adjustment takes, the longer the housing slump (weak sales, low construction, high numbers of unsold homes) will last.
It's elementary economics. Pretend that houses are apples. We have 1,000 apples, priced at $1 each. They don't sell. We can either keep the price at $1 and watch the apples rot or cut the price until people buy. Housing is no different.
Even many economists -- who should know better -- describe the present situation as an oversupply of unsold homes. True, there is about 10 months' supply of existing homes as opposed to four months' a few years ago. But the real problem is insufficient demand. There aren't more homes than there are Americans who want homes; that would be a true surplus. There's so much supply because many prospective customers can't buy at today's prices."
Robert hits the nail on the head. House prices are elastic, i.e. when prices drop, demand increases. Portland's 12 months of supply will only drop when prices come back in line with demand, and now that cheap and cheerful credit is gone, so are lots of low end buyers. They will either need to save more for a down payment (not likely given our credit card society) or house prices will have to drop to affordable levels. Preventing foreclosures, renegotiating loans that people never could afford in the first place only prolongs the issue.
