Chapter 2 - The Operation of a Market

“Houses starts to move lower in 2007:CMHC”
Source: http://www.canada.com/, November 2, 2006

The article’s main idea is about how the demand for houses is going to slow down, even in Alberta and BC, and therefore the constructions of houses in Canada is going to decrease in the next year. It is expected that the demand for houses will continue to decrease over the rest of the decade. The Canada Mortgage Housing Corporation predicted that Manitoba will be the only province where construction is expected to increase from 2008-2010. This year, BC and Alberta will boost the average selling price of a home up 11.5% in 2005 to $278,100. However, it is expected that next year, the increase in prices will only be half of this year’s increase. Increase in homes for sale combined with slower sales will balance the housing market.


Relation to Chapter 2 – The market of houses, supply and demand and elasticity


Due to the high demands of home ownership, in the past, the market was able to raise their prices. The demand of home ownership was represented by the limited quantity of housing. In a response to the popular demand the housing market began to flourish. As the demand for houses increased, the price of houses also increased. The low mortgage rates, or the complementary product, increases in population and the taste in preferences were the result of the record sales in new and existing hones.


However now, it seems as though, people realize that they are not able to purchase the houses anymore because of the price increases. This is when people start considering the alternatives or substitutes to houses such as apartments, condos, townhouses, duplexes and rentals, and therefore houses are elastic. I believe that as time wares off, the increase in supply of houses with the struggle to sell at high prices will bring more of a balance to the housing market or, in other words, back to an equilibrium price where it is considered to be affordable.

In my opinion, I believe that only time will tell if the prices of the housing market will fluctuate or not. As more and more substitutes of houses are available, people may adjust their buying patterns especially if there are changes in the price of substitute products. Since apartments, townhouses, etcetera are close substitutes for houses, the increase in price of homes will likely influence the demand for the substitutes.