Real Estate Over Supply Is Not Oil Stock Piling

An over supply of real estate in an area is not like stock piling oil, that is not for sale but for national security. And an over supply of real estate in an area will follow the classic supply and demand relationship unless there is artificial game playing to suppress that action. In which case you might see unusual developments in the retail market that will effect prices and micro economic laws that try to assuage the bigger macro economic trends. The market has to be protected for a certain amount of time or until demand triggers another round for building. There might be pressure to capitalize on low interest rates for businesses hence the building fever. At the same time, low interest rates for consumers raise consumer debt levels with the temptation to spend so that the debt to income of a home purchaser degrades in that exuberant real estate market. The house a consumer can afford isn’t just based on income but also what they already owe. Such that a consumer with less income but no debt can afford a bigger house than they might think possible than even a consumer with a higher debt to income ratio. Such high income consumers might feel that prices have risen on large homes because the lower income consumer with no debt are the shoppers for moderate homes while they themselves are rejected by the banks for bigger homes. In this case, the local law might reduce the required down payment to address this group of consumers. Doing this has an impact on the entire market. In a fast growing city, new inhabitants need to rent before they can buy because the bank requires an income history in the local area. Limiting the supply of rental properties will impede these inhabitants from settling in the area whereas rent-control might expand supply of rental properties to meet the demand of these new inhabitants.