Housing Prices Essay Example | Topics and Well Written Essays - 1000 words

Housing Prices - Essay ExampleAs it takes time for new housing to be constructed (in case of no overbuilding left from previous periods and thus existing housing stock being scrimpy to meet the newly increasing demand) the supply can non react fast to the demand shocks and thus increased prices allow for stay for some time until the supply is sufficient. Increased prices motivate construction firms to increase their output levels dramatically as the profit margins to be received from housing imputable to these high prices are expected to be high. That is why the rattling estate food market is prone to known hog cycle per seconds or herd appearance2 where the construction companies overestimate the market demand and thus are myopic and construct in any case much supply. Other theories claim that actions of constructors to thoughtfully produce more than can consumed over short hybridize of time are rational acts and are based on their trying to take advantage of economies of g raduated table in production and thus economize on each unit of housing to be produced. Also, it is not irrational to have expectations of the economic upswing to be followed by some structural economic changes which will pull ahead lead to economic development or increase in the total population of the region due to this better economic conditions of living.Economic development is cyclical and the influence of the factor that lead to economic upturn has its term. after the factor is not in exponent any longer, the economy starts stabilizing with real purchasing power not growing any longer. This is usually the time when the majority of the new housing supply comes on the market and it will be absorbed slowly with the prices dropping and vacancies occurring. The downward pressure on the market will sustain until the next economic upturn or until all the overbuilt housing supply is consumed. The biggest problem is that real often construction firm being overoptimistic about the ho using or in general real estate prices develop land by using borrowed money. Once they bring on the market their product, the cycle is already in another stage which makes difficult for companies to generate enough income to pay back their loans. The highest insecurity of overproduction exists in real estate segments where the construction terms are the longest, demand is most unsure and construction is irreversible. That is why some developers try to eliminate the risk and deliver to the market not niched products merely ordinary housing. This further aggravates the crisis as the stock becomes not varied and overproduction is especially significant within some segments of the market.The similar situation was observed during famous real estate which lead to banking crisis in Sweden in 1991 and was also considered a global real estate crisis with numerous international investors being in the market. The opening behind the occurrence of International housing cycles is the interre lationship of overall economic development in the polar global regions and due to this increased interrelationship between economies investors find