|I thought this was an notable observation by Nicholas Yulico at TheStreet.com:|
"Slashing prices on new homes isn't universally translating into increased demand from homebuyers.
This phenomenon, in economic terms, is called the inelasticity of demand. Typically, demand is elastic with respect to price, meaning that demand increases in some proportion to a drop in prices.
Demand is inelastic when prices for goods fall but the quantity demanded barely changes or doesn't change at all. With homebuilders like Pulte trying to clear record inventories of homes, inelastic demand is particularly bad news.
Pulte, which reported a $788 million loss for the third quarter, is the first homebuilder to highlight this problem amid the ongoing housing downturn.
The company's management told investors on its conference call that in certain communities, 'price is not moving product a lot' and the situation is 'getting a bit inelastic.'
. . .
Pulte said the 'inelastic' pricing problem is broad-based and not just an issue of geography.
'Earlier this year as you lowered pricing, you got something for it. Now it seems like you're not getting so much volume,' Pulte executives said on the call. As a result, Pulte is focusing on offering other incentives to homebuyers rather than just price cuts, the company said.
. . .
Ryland (RYL - Cramer's Take - Stockpickr - Rating) CEO Chad Dreier echoed this sentiment on his company's conference call when asked about the matter.
'I would agree in general principle that prices are reasonably inelastic at this point,' he said. 'If you're selling a home for $300,000 and offer 10% off, I don't think you will sell any more houses.'"