Found 1 blog entry tagged as supply and demand.

What drives the risk of a house price correction?

According to JP Morgan, the housing bust and subsequent recession were deepest in the areas where mortgage borrowing expanded the most in the pre-crisis years, driving unsustainable increases in prices. During the 2006-2011 housing bust, price declines were closely intertwined with growth in mortgage debt during the boom. The growth in mortgage debt from 2003 to 2006 explains about half of the variation across counties in the decline in real prices from 2006 to 2011.

Another notable feature of the mid-2000s housing market is the presence of high prices even in places where the supply of housing could – and did – expand rapidly. Indeed, in the mid-2000s, prices rose well above cost in a number of markets…

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