1999
Abstract:
Prices of existing houses peaked in southern California during the second quarter of 1990 and
preceded a lengthy recession. This paper examines the response of homebuilders in a master
planned community in the suburban Los Angeles region to the end of the boom and the onset
and deepening of the recession. There has been little research which has focused at the micro
level on builders’ responses to changes in market conditions. This paper will employ data from
master planned community home builders in Riverside County between 1989 and 1994 to
examine the dynamics of the market. This analysis sheds some light on the volatility of housing
starts not attributable to price changes in previous studies. For example, builders are found to
shift to producing low cost or lower priced housing units presumably in response to changing
consumer preferences. This adjustment does not arise from design changes but simply
producing more of less expensive product that had already been planned and curtailing
production of higher priced houses.
