A Downwards Trend of the Housing Market
https://www.cnbc.com/2022/10/28/pending-home-sales-fell-10percent-in-september-from-august.html
It’s no new news. As people experience inflation and higher interest rates, their inclination to purchase goods goes down; bigger investments, specifically homes, has drastically felt the impact of this buyer trend. With the information of user trends and where the economy is hypothesized to go towards, economists have predicted a 4% decrease in the number of pending home sales. But, over the year, sales have actually dropped by 31%. Buyers are unwilling to buy as down-payments have increased and sellers are also reluctant to sell as they anticipate higher interest rates with purchasing new property. As noted in the article, the purchasing power of buyers has decreased by $100,000 due to these factors. However, aside from the technical factors, there seems to be psychological factors at play as well. As people hear from their peers and others about not purchasing homes, it impacts their intentions in doing so, even if they may be financially capable of doing so.
The behavior of buyers follows the topic of “herd mentality” that was discussed in lecture. As explained through the urn example, if the first two people choose the option for which they believe is the majority marble color in the urn, the participants after will choose the same answer even if their private information (information that they know to themselves; i.e., in this case, which marble color they drew) is different. This example is one of many that exemplifies that people are easily influenced by the actions of others. In the context of the discussed article, it appears that if a potential buyer simply hears about other buyers not wanting to commit to a house, they are not likely to do so either. With the cumulation of this mentality, the housing market trajectory ended up being much steeper than predicted.