suppose people who are thinking about buying an existing home (demanders in the

Question

suppose people who are thinking about buying an existing home (demanders in the housing market) are current home owners who are thinking about selling their homes (i.e. suppliers in the housing market) suddenly believe that existing home prices are likely to be signifigantly higher next year than this year.

A. Will this change in expectation cause the demand for existing homes to increase or decrease this year? Explain.

B. Will this change in expectation cause the supply of existing homes on the market to increase or decrease this year? explain.

C. what effect will these changes in expectation have on the price of existing homes this year?

Explanation / Answer

A) The demand for existing homes will increase as home buyers would always be happy to buy at lower cost, If you look at trends of any housing market, most units are sold when there is a boom, This is simply becasue home buying is not just for living it is investment that they are making. In pure economic sense home demand will just go up.

B) The supply will decrease, The reason is simple existing home owners would always love higher prices, So they would deffer the sale, this would further increase the prices as supply of property will become limited as there are no sellers.

C) Prices will just go up, The buyers are willing to buy so, the demand for houses is increasing. Then the sellers are unwilling to sell so supply is decreasing. So prices will go up in such situations.

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