Housing Market

I read an AP article talking about the housing market and its current conditions. It says that the the past 6 months (March-August) has been the worst stretch (based on number of homes bought) in the housing market since record-keeping began. Due to the poor economy, many buyers are reluctant to make what is seen as a "big risk" purchase like a home.

Using the Porter's 5 forces model we have discussed in class, we see what makes the house selling industry so poor right now. Due to the incredibly low demand, buyer power is increased drastically. The article talks about someone who was able to buy a house for $35,000 less than the appraised price for the house they are buying. Situations like this are everywhere. Those selling homes are so desperate to make a sale that they are willing to accept offers for much lower than they should.

Also, the main substitute to buying a home is renting. Because there are so many people with property that they are not able to sell, it is easier than it has been to rent and is increasing the popularity and demand for renting. Thus, the availability of this substitute also negatively affects the housing market.

It is interesting to use the Porter's 5 forces model to analyze an industry and you can quickly pinpoint certain factors that play a big part in creating the success (or lack of it) in an industry.