What is an analysis of the article "US pending home sales climb to 9-year high" by Josh Boak?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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This article tells us that home sales in the United States are at a higher level than they have been since April of 2006.  This was about a year before the start of the “Great Recession.”  The article says that there are three main reasons for the increase in home sales: job growth, low mortgage rates, and the fact that those mortgage rates appear to be increasing.

One principle that we can see in this article is the principle of business cycles and the impact they are supposed to have on employment.  When an economy is in a recovery (also known as an expansion), unemployment is supposed to drop.  During this recovery, which, as the article mentions, has been going on for 6 years, jobs have grown very slowly.  This is making economists wonder whether “jobless recoveries” will be the norm in our new, more globalized and mechanized economy.

The main principles that we should see at work in this article have to do with factors that affect demand.  We can see three factors mentioned, all of which have caused the demand for houses to go up.  First, we are told that job growth has helped the demand for houses rise.  One of the non-price determinants of demand is buyers’ income.  When the number of jobs in the country grows, the overall income of buyers in the country will tend to rise as well.  When income rises, the American populations as a whole is willing and able to buy more houses.  Second, we are told that low mortgage rates help lead to more demand for houses.  Practically everyone who buys a house needs to get a mortgage to do so.  We can think of mortgages and houses as complementary goods.  When the price of a complementary good (the mortgage) drops, demand for the other complementary good (houses) rises.  Finally, the article says that demand for houses is increasing because interest rates are rising.  This has an impact on buyers’ expectations.  If I expect that it will cost more to buy a house in the near future (because mortgages are getting more expensive), then I will want to hurry up and buy my house now, before the mortgage rates can go up.  Thus, this article illustrates the principle of demand and the factors that can influence demand.

Relatedly, the article shows us something about the principle of supply and demand and their influence on prices.  Basic economic theory tells us that when demand for a good goes up, the price of that good will (all other things being equal) go up as well.  The article tells us that demand for houses is rising and it also says that the median price of a home is rising.  This shows how rising demand can lead to rising prices.

My view of this article is that it makes me somewhat worried.  One of the main causes of the Great Recession was the housing bubble where housing prices got to be too high.  If house prices are approaching the levels that we saw soon before the bubble burst, shouldn’t we be worried that we might be seeing another housing bubble?

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