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Essay / The Time article makes this clear: "There is reason to worry that distressed home sales — like foreclosures and short sales — will hamper the housing recovery in 2013." When someone forecloses or short sells their home, it means they are selling their home. Ultimately, foreclosures and short sales increase the supply of housing on the market. Using Chart 3, we can see the impacts of an increase in supply on the real estate market. An increase in supply causes the equilibrium price to fall and the equilibrium quantity to increase. Demand, in the short term, remains unchanged. However, according to the law of demand, as the price falls, more buyers will be encouraged to purchase a home, which is expected to happen in the long run, especially if the price continues to fall. In terms of consumer and producer surplus, consumer surplus will increase and producer surplus will remain ambiguous. After everything we've discussed, another interesting real estate market dynamic has to do with the elasticity of housing demand. As we all know, if you don't own a house, you will rent an apartment. In the housing market, apartments are a close substitute for homeownership. When comparing the two markets, one of the factors that can be compared is the elasticity of demand for each type of housing. The elasticity of demand will affect how much demand changes as the price increases or decreases. Based on
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