Let's See, When Supply Drops, Prices Fall

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Thursday, 28 October 2010 05:01

That's what NPR told listeners in its top of the hour news segment on Morning Edition (sorry, no link). The context was the possibility that a slowdown in foreclosures will reduce the supply of foreclosed homes being put on the market.

The Obama administration and other analysts have made this assertion, but it does defy basic economic logic and common sense. If a delay in the foreclosure process results in fewer homes being placed on the market then we should expect prices to rise, not fall. (This is compared to what would happen otherwise -- prices are falling now.) It is arguable whether such an increase would be good or bad, but reporters should try to get this one right even if the administration is having problems figuring out which way is up.