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Mini-Research Paper

Mini-Research Paper - Nick Blossom Mini-Research Paper The...

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Nick Blossom Mini-Research Paper: The Recent Housing Bubble and its Importance I set out originally to find differences in the way the recent housing bubble affected different areas of the United States. I found almost no information comparing different areas and how they were affected, but a lot of information regarding why and how this bubble was different than other speculative bubbles. Housing markets have been extremely steady over time, showing only two significant increases over the time period from the late 19th century to the early 21st. (Shiller, pg. 13) There are reasons housing prices have remained so steady for so long. Many people think that housing prices should rise significantly over time because the population is growing so rapidly and we have a limited supply of land, therefore they think that the demand will increase beyond supply, but the reality is that most existing land is not being used for residences, but for other things like agriculture and forestry. When people need more land, they either buy up rural areas to develop, or modify existing urban land use codes so that they can build more high rise apartments, or other such things. In addition, continues to go down as new methods of construction and construction technologies are developed. So demand as a whole for housing is growing steadily, but so is the supply. Another thing that helps keep housing prices so steady is the fact that it is more difficult and more expensive to enter and exit the housing market. When you buy or sell a stock, the transaction itself is swift and painless, so more transactions can take place over a given time period. This makes prices move much more quickly and encourages speculation because people think they can quickly sell their stocks if they see a crash coming. With houses, it is a much slower process. There are so many laws and regulations about buying and selling, not to
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mention taxes, so many real estate agents and other types of middlemen, and also, the amount of money is much greater per house than it is per stock, so the amount of money you have to invest is harder to control and the level of commitment is much greater. The first large jump in national housing prices occurred right after World War II. Soldiers returning from Europe were looking to settle down and start families (and give birth to the baby boomers), which means they wanted houses. The increased demand drove the price of homes up, but the price change was not speculative; the people buying the homes were intending to live there, not to sell later for a higher price, so the price change stuck.
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