Market Dynamics Reveal Slow Price Adjustments

Analysis of extensive housing data in Washington, D.C. reveals that housing prices react sluggishly to market changes, indicating that the market often does not clear efficiently. Fluctuations in buyer and seller quantities significantly influence price movements. For instance, prior to the 2008 housing bubble, there was a surplus of buyers compared to sellers, which reversed once the bubble burst, creating a situation with many sellers and few buyers. Additionally, the housing bubble was triggered by shifts in banking lending policies, where banks became more lenient with loan approval, impacting market stability.