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Old 12-10-2013, 12:11 AM
 
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I'm stuck on this question. I keep going back and forth. I need to know which has a higher elasticity of demand: buying a home or renting an apartment.

I put that buying a home has higher elasticity because people can become quickly priced out of the market if the prices rise too quickly. Then again if rents rise too quickly you can also get priced out of renting too.

Overall, I'm confused by the question. Can anyone clarify for me?

Thanks!
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Old 12-10-2013, 01:37 PM
Status: "Enjoying the winter" (set 26 days ago)
 
Location: East of Seattle since 1992, originally from SF Bay Area
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If home prices are too high you have to rent. If rent prices are too high you still have to rent, you simply rent a smaller, older or more run down place in a undesirable, high crime area since you need a place to live. Most homes are sold while the owner is still living there. When it coms to rent, landlords cannot afford to have empty units, so they are far more likely to lower the rent to get it rented. Look at the recent example of the home mortgage/foreclosure crisis, where supply/demand was no longer in effect for home purchase the prices fell anyway, causing a huge over supply. The result was increased rents in response to the demand for people displaced by foreclosure.
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Old 12-10-2013, 10:09 PM
 
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So the elasticity is higher for home buying?
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Old 12-11-2013, 03:05 AM
 
Location: Copenhagen, Denmark
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I'm not sure what you are after. The "own price elasticity" of demand is defined as a percentage change in the consumption of a good or service due to a 1% change in the price of that good or service. It is usually applied to housing services not to physical structures. The cross price elasticity of demand for rental housing services, in this case, is the percentage change in the consumption of rental housing services due to a 1% change in the price of owned housing services prices.

These are measures of the effects of price changes, not price levels.

More important to keep in mind is the fact that you can substitute out of rental housing into single family home ownership much faster than you can, going the other way because the single family home is purchased as an asset and rental housing is not. Other things being equal I would guess that, for this reason, rental property purchases are more responsive to price changes in the single family housing market, than the other way around. Keep in mind, too, that if you buy a fixed rate loan for single family housing, the payment will not fluctuate (but the house value will), while rental prices are more volatile, up and down.
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Old 12-13-2013, 03:59 AM
 
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Which market varies in demand the most?

Most people want to own a home. That's a constant. The variable is renting, as most people only rent if they can't buy.

Renting is far more elastic, in the West at least.

Last edited by xisnotx; 12-13-2013 at 04:44 AM..
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Old 12-18-2013, 12:05 PM
 
Location: North Idaho
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OP, you are trying to compare two things that aren't the same at all. Buyers and renters are generally not the same groups of people at all, so you are going to have difficulty placing them onto the same scale to compare.
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