[EliRivers]

Housing follows the laws of supply and demand like everything else.

Certainly not like everything else. The demand for housing is a function of (amongst other things) how easily people can borrow the money to pay for one, how much the interest on that debt is, and what they guess is going to happen to prices in the future. Under simple primary school "supply and demand" economic theory, increasing price leads to a reduction in demand, but it's common to see increases in house prices lead to increases in demand, and vice-versa. To simply say that housing follows supply and demand is such a simplified view that it's more wrong than right.

[hueving]

Sorry, you are confusing cause and effect. It's a common mistake.

The housing prices increasing means demand had already gone up. An increase doesn't leaf to more demand. If people were paying increased prices, it means the demand has increased enough for the seller to make the sale at the inflated price.

[EliRivers]

You are incorrect. Also a common mistake.

An increase doesn't lead to more demand.

Yes it does. People see prices going up. They see the front page of a tabloid paper declaring it repeatedly. They panic about "missing the boat" and other such. They see people who did buy sitting on sudden equity gains, and they want some of that. They were going to wait, but now they won't. They stretch, and go out and buy. Extra people deciding to buy increases the demand, which then increases the prices again. Lenders see their balance sheets looking better and better as their debtors' equity increases, so they can lend more and at lower interest rates. The increasing house prices have led to an increase in mortgage availability which leads to more people able to buy houses which increases demand again. Increasing house prices increase demand increases prices increases demand, right up to the point where enough people simply cannot get the mortgage necessary.

As markets crash and people see prices dropping, they decide not to buy. They will wait until next month/quarter/year, when prices will be cheaper still. They also flinch at the idea of negative equity, especially if they remember it from the last crash. Demand drops. Falling prices makes lenders demand higher deposits to protect themselves from dropping house prices, so people who could buy suddenly can't; the falling prices cause a drop in demand. Mortgage lenders watch their debtors equity vanish and find themselves compelled by balance-sheet regulations to change their lending; the falling prices causes a drop in ability of people to get a mortgage, so demand drops. Often, the lop-sided economy suffers from the crash and people have less money so they can't spend so much servicing a mortgage, so demand drops. Decreasing house prices decrease demand. Housing is also one of the few things non-investors buy that they call an investment. Watching the biggest potential purchase they will ever make bleed makes it a much less attractive "investment". Demand drops. Falling house prices lessen people's interest in buying a house. Falling house prices cause lower demand, which causes lower prices which causes lower demand.

But this is crazy. Surely this would lead to some kind of endless boom-bust cycle in house prices.

[hueving]

You've just wasted a lot of space describing supply and demand. The same thing applies to any commodity or potential investment vehicle. People buy gold when they think the price will go up, which increases demand and therefore the price. There is nothing special about houses other than the fact that you can live in them.

[EliRivers]

The point I'm making is that the supply that most affects house prices is not the supply of houses, so to say it's "supply and demand" and stop there is to imply heavily that the supply in question is the supply of houses. Which is wrong.

commodity

Houses AREN'T commodities. Commodities are, by definition, fungible. Houses are not fungible. If you are thinking of houses as a commodity, and trying to apply the rules of commodity economics, that is a large part of your misunderstanding.

There is nothing special about houses other than the fact that you can live in them.

That's also not true. Something funny happens inside people's heads with houses. They will go to stupid lengths and put themselves into ridiculous situations in order to get one. People who would drop any other investment with the same characteristics like a hot potato somehow can't see it when it's a house. They're not like "any commodity or potential investment vehicle" (not least because they are NOT a commodity, as explained above), and to say that they are is wrong.

As it is, I'm presenting a lot of argument and you're going "nu uh, nu uh, you're wrong". Do you have anything other than just saying "nu uh", or is that the limit of your argument? If this is a fundamental axiom for you that simply cannot be argued, just say so.