Suppose people who are thinking about buying an existing home (i.e. demanders in the housing market) and current home owners who are thinking about selling their homes (i.e. suppliers in the housing market) suddenly believe that existing home prices are likely to be significantly higher next year than this year.
- Will this change in expectations cause the demand for existing homes to increase or decrease this year? Explain.
- Will this change in expectations cause the supply of existing homes on the market to increase or decrease this year? Explain.
- What effect will these changes in expectations have on the price of existing homes this year? Explain.