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Analyzing the Housing Market with Networks

The article cited below is a discussion of the housing market across the United States, but especially in the Washington D.C. area. The article describes inflation and how across the nation the housing market is getting worse. The article tries to draw correlations, by region, between housing prices, housing construction, and the job market. Many of the insights are easily explained. For instance, housing prices decrease more in cities with bustling housing construction markets. Also, as the job market improves, housing prices tend to increase since there is more demand for each house.

The issue of demand relates to the class’s discussion of market-clearing prices and matching. When more jobs are created, more people move to a city to fill those jobs. With more people and the same number of houses, it makes each person value a house even more. To diminish the total payoff of houses for a person, the real estate market must raise housing prices. Similarly, when more houses are created, the value of each house to a person may decrease because the person will have more options. With the value lower, prices in a market can lower as well.

Also relevant to this study is the idea of a perfect match. In many cities there may not be enough houses or living spaces to accommodate all of the people working in the city. This introduces the idea of a constricted set, and in this case there will necessarily be no perfect match. With a constricted set, the valuation of each house is competitive, and prices have to rise high to lower the payoffs. On the other hand, if the housing production was overactive and there were too many houses, then the housing prices would fall since there would be a constricted set of houses instead of buyers. Then the houses would be competing for buyers instead of the other way around. Hopefully in the event that not every worker could find a home, the buyer could find a nearby home in a different market and commute to their job. For this reason, increased job creation and housing production affects a whole region, instead of just one city’s housing market. The tools of networking allow this article to analyze the housing market more effectively.

Source: http://www.washingtonpost.com/business/economy/why-your-house-is-worth-more-or-less/2012/09/25/3b0816ac-070a-11e2-858a-5311df86ab04_story.html?hpid=z3

-Frasier Pong

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