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Katrina and Home Price Gouging

This article was written by in Real Estate and Home. 10 comments.


In Baton Rouge, home prices soared 20 percent as displaced persons began buying houses at a feverd pitch, in cash, not caring what they pay as supply is too low for demand.

According to the CNN article, Baton Rouge residents have put their homes on the market to take advantage of the surge in demand, pricing their homes high above what they normally would have — if they were to sell at all — in a non-emergency environment.

Are the sellers taking advantage of those in a tough situation or just letting the rules of supply and demand play out? After all, the evacuees, some of whom don’t plan on ever returning to their former home, seem willing to pay the inflated prices. Is it fair in the grand scheme that sellers take advantage of their better position?

Published or updated September 12, 2005. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 5 comments }

avatar Hazzard

I don’t think it’s gouging. As you said, it’s a case of supply and demand.

I think it would be foolish to sell your house for less than the someone in the market wanted to pay you.

If you priced the house at what was current market value before the hurricane, you’d just be handing money to the buyer. They could potentially turn right around and sell it at the higher price.

Do I like this? No, not really. My inlaws are evacuated from New Orleans and I know that they wouldn’t be thrilled to pay 20% more than they could have weeks before the hurricane. I think I’d probably choose another city.

Hazzard
http://elym.blogspot.com

avatar Jerry Kindall

If you weren’t planning to sell before the disaster and your asking price is (just for example) 50% higher than it would have fetched in the pre-disaster market, what you are saying is “I really didn’t want to move, but if you really need a house, you can have mine for a 50% premium, and I’ll deal with the inconvenience of finding or building a new home so you don’t have to.” The alternative is of course not to sell it at all, in which case the premium is essentially infinite.

avatar D-Man

if 20,000 people suddenly want to buy a house and there are only 1,000 houses available, what is going to happen to prices? Econ 101 says they go up drastically. And 19,000 people who want houses still don’t have them. Econ 101 also tells us that as the price goes up we move farther along the supply curve, i.e. more supply hits the market as prices go up.

The 20,000 extra house buyers would like to buy a house at current market prices but supply demand says thats not possible.

The extra house sellers would probably like to sell their house for a big profit and stay in the area but that is also not possible.

So both sides make a compromise. The buyers pay above market prices to get a house and stay in the area. The sellers sell their house and move away in order to secure a very nice profit that they can take with them and pocket given that they leave their house and life behind.

Both sides give something up to get something they want. The people who “take advantage” mearly provide an option for the buyers. They are in effect saying, “I don’t want to move, but if you pay me enough money I will do something I don’t want to do” If the sellers don’t offer their houses the buyers simply can’t get a house. The buyers still have that same option by refusing to pay the price the sellers want. The buyers don’t have to agree to the terms and they are no more harmed for having the choice. It is after all their choice.

avatar Timbeaux

Unless of course you happen to have a second house lying around…that analysis is simplistic.

avatar dman

Yes it is simplistic. But it describes the situation most people are in. Surely there are people who have second houses although I am not sure how many have them just “lying around” If they are rental units they are most likely under contract.

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