The recent surge in housing prices is driven not by speculative fever but by the fundamentals of supply and demand, a USC Lusk Center economist said today. "When buyers see home prices rising, they decide to jump in to the market while they can still afford housing, said Raphael Bostic, director of the USC Casden Real Estate Economics Forecast. "This is perhaps the ultimate buy and hold strategy -- just the opposite of speculation," he said. Bostic, a former senior economist with the Federal Reserve Board of Governors, noted that a classic housing bubble is created by speculators hoping to make fast returns by buying homes and quickly selling them at higher prices. He said population growth, immigration, the strong economy of the 1990s and the lowest mortgage interest rates since the 1960s have helped to increase demand for housing nationwide. But supply has not kept pace with demand in many regions because of high land costs, opposition to development, builders' liability concerns and a time-intensive permitting process, Bostic said. Only when the supply-demand imbalance is restored will prices moderate, he said.
October 3, 2002