Shouldn't the price of housing be in a fairly constant decline?

Question

Houses aren't some kind of disposable consumable like a napkin or something. Houses stay around for an awfully long time - but... housing units seem to be built (in North America at least) faster than the population increases. Shouldn't there be a major glut of housing on the market all the time, making house prices in a constant state of deflation?

Answer 1

No -- though a housing market correction seems to be playing out in a few places -- but in reality that's not usually the case for a few reasons I can think of:

1) the number of households grows faster than the population, as the average number of people per household declines (smaller families, more singles)

2) housing growth is limited by local ordnances in many areas, which really does create a shortage

3) some people buy 2 or more houses

4) Houses are not permanent. Sometimes they're torn down.

In the long run, no matter how fast you may think houses are being built, the markets will ensure that there is not some persistent oversupply causing a long-term pricing decline. If that began to be the case, homebuilders would have financial problems and fewer would be build, which would naturally moderate the situation. (Some people think that correction process is happening right now, but i suspect that;s exaggerated).

Answer 2

Depends on population growth, age of population, rate of depreciation, etc. Housing supply is a fluid thing. Homes are constantly being built and destroyed. Look at New Orleans. Older homes are torn down and new ones built. Prices fluctuate with supply and demand. Imagine 100 homes and 100 homeowners. What happens when 1 more purchaser comes on the scene? What happens if 10 homes burn down?