Supply and demand in action in the US housing market

U.S. Home Prices Jump as Supply Pinch Plays Out
by: Laura Kusisto and Chris Kirkham
Jun 01, 2016
Click here to view the full article on WSJ.com

TOPICS: Supply and Demand

SUMMARY: Home prices across the U.S. rose sharply in early spring amid rising demand and supply constraints, a sign that the lopsided housing-market recovery of the past five years is gaining strength.

CLASSROOM APPLICATION: Students can evaluate factors that affect the demand for home ownership (e.g., lending standards) and the supply of homes. They can also evaluate the relationship between new home construction and the market for existing homes.

QUESTIONS: 
1. (Advanced) What is the relationship between the number of new homes constructed and sales of existing homes? What is a factor that could be driving up sales of existing homes?

2. (Advanced) What is the effect of stricter lending standards on the demand for starter homes? What is the effect on the equilibrium prices of starter homes?

3. (Introductory) What factor is driving up rents in big U.S. cities?

Reviewed By: James Dearden, Lehigh University