Question

The average price of a new single-family home has risen by a factor of ten ( During the past 50 years), making the cost of housing prohibitive for many Americans. Over the same time frame, however, the number of units sold per year has more than doubled. Are these data inconsistent with the idea of a downward-sloping demand curve for new housing?

Answer 1

Yes, the data is consistent as the casualty in US housing market does not run from prices to quantity. Due to increased incomes and increased immigration in the US, the demand for houses has increased rapidly (a shift in the demand curve for house to the right). This in turn, creates excess demand for houses that leads to higher prices. The statement does not mean that people are buying more houses due to an increase in price. That is indeed false. It is just the demand for houses has shifted and people can buy more at the same price.