LOS ANGELES - The recent surge in housing prices is driven not by speculative fever but by the fundamentals of supply and demand, says Raphael Bostic, Ph.D., director of the USC Casden Real Estate Economics Forecast. "When buyers see home prices rising, they decide to jump in to the market while they can still afford housing. This is perhaps the ultimate buy and hold strategy - just the opposite of speculation," Bostic says. 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, Bostic says. 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. Only when the supply-demand imbalance is restored will prices moderate.
October 4, 2002