So on one side we find none other than Warren Buffet, plus CNN, Fortune and Money magazine, and on the other side, li’l ol’ us. According to CNN.com/money (click here) Warren Buffet says that “. . . the housing bust was created by the fact that home builders put up homes faster than there were new families to fill them.” Which is another way of saying that there was an oversupply of housing. But if so, if there was an oversupply of homes on the market, and if we assume that the law of supply & demand works, why didn’t home prices go down rather than up? Why, right up to the moment the “bubble” popped, their prices kept on going up, up, up — which is why up to the end, so many people were buying them for outlandish prices in order to get in on the speculative gravy train by “flipping” them, why builders kept putting them up, and why lenders kept on lending money for their purchase? Summoning all our meager intellectual resources, we have trouble answering that one. Can you?
Follow up. Hidden in today’s Los Angeles Times is a short article to the effect that home prices have hit a new low, both nationally and in California. Alejandro Lazo, Home Prices Hit New Low, L.A. Times, February 28, 2012 – click here. Maybe people aren’t buying because, in addition to having less money on account of the recession, and being more cautious about big-item spending, people are intuitively surmising that (at least out here in California) home prices are still too high — it takes $600,000 to $700,000 to buy a decent home in a lower middle-class community like Burbank, and over $400,000 to buy one in one of its lesser neighborhoods. Which is somewhere around twice the national average. So it shouldn’t be all that surprising that people out here are reluctant to commit themselves to long-term home payments for the biggest investment of their lives, that bids fair to continue declining in value. Wonder what Warren Buffet thinks about that.