Simple macro-economics... or even micro.

I hear here and there many people who do not understand why the rent prices are not going down right now while the prices of houses on sale are going down... Couple of points can explain this very easily.

First, there are less people buying houses. On top of a bad economic situation, banks are less likely to lend money now to people who want to buy (I am talking about the banks who are still existing!). So more houses on sale (but not necessarily more supply because some people will have the house on sale sign but will prefer to wait until prices are back up before actually selling the house), so let us consider that the supply is actually almost stable.

Meaning that the prices are actually artificially going down, it is only the price that is written on the house (not the one realized = we are talking about intention of selling). There is actually less demand (because people cannot buy if they cannot borrow) for stable supply (remember the X graph studied in macro), so all in all price are slightly going down for people who can afford buying (not all who want to buy can actually do so). Not sure if that is clear for everyone...

Anyway, second big point... because people cannot buy, they actually tend to rent houses. This means that there are more people willing to rent now than a year ago. Increase in demand and supply more or less stable (some houses for sale might be converted into houses for rent in some area) lead to prices of rent actually being stable or going up (depending on local market pool).

Well that's it for simple micro-macro...

Epilogue:

Anne Roumanoff, a French comic, said on TV this weekend (comments in brackets are mine):
Prices of houses are going down, more people want to buy but they cannot buy because banks are not lending money (ie less demand). They are not lending money because the houses they have as bank guarantee (because they had lent too much money in the past (=sub-prime)) cannot be sold because prices are too low and they prefer to wait...

This also explains why some banks and financial institutions are going bankrupt... they cannot sell the houses they had on guarantee. While the person who borrowed cannot pay back... meaning that the financial institution does not get its money back, neither from the former owner of the house nor from the proceeds of the house. That means that we are screwed! All this because of these institutions who lent money to people who could not afford it... followed by the collapse of the house market bubble in the US...