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Handling the Booming Housing Market

After going through a “housing bust,” the housing market appears to be rising out of the ashes (Wall Street Journal). Homeowners are hungry to sell and buy – in March, “75% of agents with broken Redfin said their clients’ offers were countered by rival bids” (CNN). Builders are pleased with the surge in bids, but are finding it difficult to balance supply with demand. In economic terms, the housing market is not at equilibrium. The problem lies within the market of the desired construction location. Jeff Culbertson, president of Coldwell Banker’s Southern California operations, explains that new home construction “is still moving forward at a snail’s pace” because “the cost to build the homes is often more than what the property ends up selling for” (CNN). This imbalance in cost can be mainly attributed to the housing bust, which impacted many housing markets throughout America.

In order to manage the dramatic increase in demand, one method builders have turned to is the lottery. GL Homes division president Marcie DePlaza reasons that “the lottery is the fairest way to determine the priority in which customers will be able to purchase our model homes” (CNN). It seems that these builders aren’t so much handling the demand as they are making the bidding wars a more pleasurable experience for homeowners. However, they are using commercial appeal and giving the consumer incentive to purchase with their company, ensuring that demand will not fall undesirably at any point. The process is simple: Each homeowner, pre-qualified for a mortgage and with down payments in place, is assigned a number. The number on the withdrawn bingo ball is declared the winner – and the new owner of the model home. Many of those who don’t win return to try their luck on another property, because of the reasonable pricing set forth by the builder. Buyers seem to prefer this method to the competition of bidding because, as lottery participant Neal Rosen puts it, “There was no rushing” (CNN). During the lottery, while numbers are being assigned, prospective homeowners are greeted with food and entertainment to pass the time. By making the experience more pleasurable, builders are satisfying their potential customers and making the struggle for a new home worthwhile.

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Holding lotteries won’t fix the issue of excess demand for housing, but it will make the process easier on consumers and producers alike. Meanwhile, builders are “trying to build faster and get as much inventory on the market as they can” (CNN). Using my knowledge of supply and demand in the economy, I was able to more fully understand this event in the housing market and the reasoning behind lotteries. It’s clear that supply and demand must reach equilibrium, and builders are taking great strides towards that goal by simultaneously enticing the consumer – maintaining the demand they desire – and building new homes to meet that demand. The lottery method, with its less-competitive scene, would appeal to me personally as a consumer in multiple situations. For example, many girls compete viciously to be first in line to meet a celebrity, because often times the line is cut off after a certain number of people. It would be much less violent to enact a game of chance, such as a bingo lottery, that would determine who got to meet said celebrity. Home builders, in an attempt to manage demand, have presented us as an economy with a potentially inspirational way to make recovery from disequilibrium a more relaxing process.

To read more about builders’ personal reactions to this sudden housing demand, check out this article by Catherine Rampell from the New York Times.

Works Cited:

March, In. “Housing: The Bidding Wars Are Back.” CNNMoney. Cable News Network, 04 Apr. 2013. Web. 20 May 2013.

Sunnyvale, O’Brien Homes Started Holding a Monthly Housing Lottery for Its 228-unit Development Called Fusion in. “Builders Hold Lotteries for Eager New Homebuyers.” CNNMoney. Cable News Network, 30 Apr. 2013. Web. 20 May 2013.

YouTube. Perf. WSJDigitalNetwork. YouTube. YouTube, 11 July 2012. Web. 20 May 2013.
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