Demand has also fallen because of the lack of easy credit and the high price of homes. Much of the rise was attributable to easy credit, reasonable home prices and low fuel prices. The reversal of these factors has resulted in a steep dropoff in demand, which is causing most of the decline in prices. One exception may be the outer suburbs, however. That is the area where new supply was being created, and so those areas had a large number of new homes constructed. This gives those regions a greater supply problem than inner suburbs. That is why prices have fallen much further in the outer suburbs than they have in the inner suburbs and city. These less desirable areas have suffered steep declines, over 40% in outlying San Diego county vs. A decline of less than 10% in many beach areas.
Expectations of future price movements will also affect demand and supply. The rise in housing prices, for example, drove higher demand as it encourage many speculative buyers to enter the market. It also drove higher supply, as it encouraged developers to begin new home construction projects. Now prices are in decline, and it is believed by some that the decline is only halfway. This will affect demand is that few buyers are willing to enter the market while it is still in decline. They will instead wait for the prices to finish falling. Supply will also be affected, because fewer houses will be placed on the market. Unless a seller is motivated, they will prefer to wait until prices rebound. Also, new home construction will stop as developers will be afraid that they will be stuck with houses they cannot sell, or at least not profitably. At present there are even signs that demand is...
Mostly, these factors are the reverse of the same factors that caused prices to increase over the past few years. In the housing market, the future expectation of prices is a major consideration for both buyers and sellers. This makes the variations in price much greater than what might be seen in other industries. The degree to which the factors of supply and demand has affected the southern California housing market depend on geography - the factors have a more extreme affect in outlying areas than they do in the inner city.
Works Cited
Vincent, Roger. (2008). Gas Prices Latest Worry for Housing Market. LA Times. Retrieved July 23, 2008 at http://www.latimes.com/business/la-fi-homes17-2008jun17,0,2766175.story
Showley, Roger & Pierce, Emmet. (2008). Housing Slump in No Hurry to End. San Diego Union-Tribune. Retrieved July 23, 2008 at http://www.signonsandiego.com/uniontrib/20080716/news_1b16housing.html
Hong, Peter. (2008). Bargain Hunting Picks up as Southern California Home Values Fall Further. LA Times. Retrieved July 23, 2008 at http://www.latimes.com/business/la-fi-homesales17-2008jul17,0,3250369.story
Vincent, Roger. (2008). Gas Prices Latest Worry for Housing Market. LA Times.
Showley, Roger & Pierce, Emmet. (2008). Housing Slump in No Hurry to End. San Diego Union-Tribune.
Hong, Peter. (2008). Bargain Hunting Picks up as Southern California Home Values Fall Further. LA Times.
