Current income is the most relevant determinant of consumption. Other things equal, a higher price level (inflation) reduces the real current income, thus real consumption. The article mentions that there has been a slow growth in personal income. The housing bubble pushed up housing prices, but others factors have come into play such as higher oil prices and

higher interest rates. Higher oil prices are serving as a tax on consumers, leaving them less money to spend on other goods such as housing. And, higher interest rates mean buyers cannot afford higher home prices. Previously low interest rates had served as a form of price reduction, but have risen from 5.2% in June 2003 to 6.5% for a 30-year fixed rate mortgage.

The article states that prices in the country are at or near records. According to the law of demand, the higher the price of housing, the less people will demand. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid home purchases because they will force them to forgo the consumption of something else they value more. As prices fall, the supply will fall as well because prof

Some common words found in the essay are:
Hagerty Simon, Mid-Atlantic Southeast, West Coast, economic theory, Street Journal, housing prices, demand decline, prices fall, change demand, home prices, current income, home-purchase contracts, demand price, supply demand,
Approximate Word count = 598
Approximate Pages = 2 (250 words per page double spaced)