Katrina and Home Price Gouging
In Baton Rouge, home prices soared 20 percent as displaced persons began buying houses at a feverd pitch, in cash, not caring what they pay as supply is too low for demand.
According to the CNN article, Baton Rouge residents have put their homes on the market to take advantage of the surge in demand, pricing their homes high above what they normally would have -- if they were to sell at all -- in a non-emergency environment.
Are the sellers taking advantage of those in a tough situation or just letting the rules of supply and demand play out? After all, the evacuees, some of whom don't plan on ever returning to their former home, seem willing to pay the inflated prices. Is it fair in the grand scheme that sellers take advantage of their better position?
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In general across a broad variety of services, competition has been driving commissions down. The internet has certainly helped in decreasing these costs to the consumer. For instance, you can trade stocks for $7 instead of $35 or more. Even management fees for index funds ... Read
The New York Times proves that in many expensive areas of the country (California, northeast U.S., etc.), it can be much better (financially speaking) to rent rather than to buy the same dwelling. Read
As home prices have risen, so have broker commissions. Thus, many home sellers are deciding to go the do-it-yourself route. There's an informative article on CNN with some tips for those who want to avoid spending thousands of dollars unnecessarily. Read
Federal Reserve Chairman Alan Greenspan commented a few nights ago: Read
if 20,000 people suddenly want to buy a house and there are only 1,000 houses available, what is going to happen to prices? Econ 101 says they go up drastically. And 19,000 people who want houses still don't have them. Econ 101 also tells us that as the price goes up we move farther along the supply curve, i.e. more supply hits the market as prices go up.
The 20,000 extra house buyers would like to buy a house at current market prices but supply demand says thats not possible.
The extra house sellers would probably like to sell their house for a big profit and stay in the area but that is also not possible.
So both sides make a compromise. The buyers pay above market prices to get a house and stay in the area. The sellers sell their house and move away in order to secure a very nice profit that they can take with them and pocket given that they leave their house and life behind.
Both sides give something up to get something they want. The people who "take advantage" mearly provide an option for the buyers. They are in effect saying, "I don't want to move, but if you pay me enough money I will do something I don't want to do" If the sellers don't offer their houses the buyers simply can't get a house. The buyers still have that same option by refusing to pay the price the sellers want. The buyers don't have to agree to the terms and they are no more harmed for having the choice. It is after all their choice.
Unless of course you happen to have a second house lying around....that analysis is simplistic.
Yes it is simplistic. But it describes the situation most people are in. Surely there are people who have second houses although I am not sure how many have them just "lying around" If they are rental units they are most likely under contract.
But lets assume that every single extra house coming on the market is a second house lying around. The logic still applies it just needs to be adjusted for the circumstances. Second houses "lying around" have functions. They provide a vacation purpose, or they provide rental income / investment purposes. The owner has perviously found the function of this second home to be more important to them than the money they could get by selling it. So once again, for the right price they are willing to give up something they want (the vacation home, rental income/ investment opportunity) to get an unexpected large jump in net profit today.
Its still econ 101, its still supply demand, its still exactly the way everything works in a market economy where you have willing buyers and sellers allowing the collective whole to set the price at which the number of buyers and sellers is matched. And as before, the buyers don't have to agree to pay the price and they are still no more harmed for having the choice.
Of course if you believe they are harmed for having the choice and find this model repugnant there is always social-ism. (dash included because the filter thinks I am posting spam about an ED enhancement drug if I allow that word to be spelled in its entirety).
