Law of Demand applies to Real Estate
USA Today, along with every other news outlet, is reporting that home sales in May declined. "Sales of new homes collapsed in May, sinking 33% to the lowest level on record as potential buyers stopped shopping for homes once they could no longer receive government tax credits." This seems to come as a surprise to these journalists and some economists. The result is a simple, the law of demand does apply to real estate. With the federal tax credit the price effectively decreased by $8,000 and the quantity of sales increased. With the end of the tax credit prices again increased and sales decreased. This is not surprising, this is not even necessarily the result of the current economic conditions, this is simply the law of demand. Any one who understands the law of supply and law demand would not find any thing in this article remarkable. One more reason why economic literacy is important.
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