Tuesday, August 28, 2007

Relative Scarcity


When something (Let's say... a house) is for sale at a certain price and there are no buyers, the seller may choose to keep the house or lower the price. Eventually, the bid meets the ask and then there is a transaction.

Right now (in many markets) there are few bids and lots of asks. If the asks were lower, there would be bids - oh yes indeed. Houses are plentiful, but for the right price - I'll take'm all.

Because the process is drawn out over time, it takes on other qualities. If it were compressed like the stock market, the dynamics would be easier to work with. However, it isn't compressed. This gives everyone enough time to sulk.

The housing supply (and subsequently the price) moving up or down and eventually (years) falling neatly along the previously established regression, is not the end of the world. When the general consensus is one of impending doom, we can look for the balancing influence to hop in. Then we can start over. Maybe next time, some lessons will have been learned about stretch-financing, sub-prime etc. - probably not.

Hmmm... relative scarcity.

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