The housing price conundrum | Current Economics | Finance & Capital Markets | Khan Academy

Until 2006, real estate agents said the price of housing nationally in the United States is constantly increasing. Sometimes there are reductions. For example, the price of oil falls and homes in Texas are getting cheaper. Or there are mass layoffs in Michigan and the price there falls. But nationwide, prices have been rising steadily. This has been the case since the Great Depression. On average, property prices grow by 1% every year. In real terms – a little less.

But something amazing happened in the beginning the last decade. I'll show you the Case Schiller index. It is the best measure of housing prices in the US. He compares the purchase price of one and the same house. I will do it later video about him. Let's see this index now. So in 2000 a house costs about $ 100,000. That is, in 2000 the index was $ 100,000. In 2004, the price nationwide increases by 46%. In 2006 we already have an increase of 88%. This is almost twice as much as in 2000. The question is – what happened? Why are prices doubling so fast? So, for the first time in US history prices are rising so fast. Especially as considers how the rest of the economy is developing.

What do I mean … What is necessary, to raise a price? Demand needs to increase faster than supply, right Let's look at a few options. What will lead to an increase in housing demand? I will mark this in green. Search incentives … Maybe the population has increased? Since there are houses built. So it could be the population. The population is increasing. This is a stimulus to demand. What else? Revenue growth So … Another incentive If people have become richer they will be willing to buy a house.

What are the supply incentives? Just the newly built houses, that's it. If we follow the classic model of supply and demand why prices for 4 years jump by 40%, and for 6 years – already by 80% Maybe the population and income have increased faster from the construction of houses. Is that true? This is an article from the New York Times. The data can be found on the Internet. This is a very quick study. I will show you now. Here is the article. There are also graphics. This is the average amount of declared income.

In the period 2000 – 2004 they are falling! Declared income is less. I don't believe it's because income evasion. According to statistics, taking into account inflation incomes are 1.4% less. The population has increased average incomes fell by $ 1,600 per year, which is a 3% decline. What's coming out? Total income falls by 1.4% but because there has been population growth per capita the decline in income is 3%. I'm writing this down. What happened? From 2000 to 2004 the population increased by 1.5%. It is not much. That's 4 years. Less than 1% per year. And if income is considered per capita comes out on average that incomes have fallen 3%.

The total amount of money that people have earned decreases … With 1.4% So it's not true that money has increased, and the number of houses remained the same. But maybe a lot of old houses have been destroyed or something. Let's check this out. In 1999, there were about 115 million homes in the United States. So by 2000 about 115 million houses And so…. How many were built for these 4 years. How much have the houses increased? Here's what I found. The data are on average per year. Maybe it's hard to see him … The data are for 2000 and 2001. On an annual basis about 1.5 million new houses in 2000 But then an increase begins. In 2004 they were built on 2 million homes per year. So during this period comes out on average 1.8 million homes per year. We accept that the destroyed houses are negligible a little. I'm not sure how many they are.

But most houses are being renovated. Plus 2 million brand new. So for these 4 years counting the statistics what comes out 1.8 million by 4 About 7.2 million new homes. And we started with a base of 115 million. on average by 2000 It turns out that in 4 years we have 6% more houses. The supply of houses grew by 6%. A pile of new houses in 2000-2004 That is 6% growth in supply. While – decline in income. Because of the layoffs, people are tend to work for less. Decline in income. The increase in population is small. And therefore the disposable income also fall In reality, the money has decreased. But the volume of new houses is increasing. And yet prices are rising 46%. And lasts up to 80% for the period 2000-2006. This is strange. The theory says that with an increase in supply and a decrease in demand prices must fall. So what's going on here? I'll let you think a little. Economic theory argues that there should be a reduction in prices. Not only is there a rise in prices instead, but it is also the greatest in history. I will explain in the next video how did you get here.

See you soon. .

test attribution text

Add Comment