http://www.msnbc.msn.com/id/23335173/

In the above article, the Associated Press states that housing sales dropped .4 percent this month, the slowest pace observed since 1999.  The median price of a home has also dropped 5% in price since this time last year.  With this news, it becomes apparent that a bipartite preferred seller graph can explain what is happening.

With the current housing situation, perfect matching is not occurring;  in fact, there is a constricted set of sellers which results in a lack of buyers, hurting the seller’s chances of making a transaction.  Part of the reason that there is a constricted set is because the sellers prices are too high to allow for perfect matching and to clear the market.

Because of the inflated prices in the market, for there to be perfect matching, the seller needs to lower its prices to entice the possible buyers to purchase which turns this situation into a descending (Dutch) auction.  The sellers will continue to lower the prices of their homes until a buyer arrives at his reservation price and (assume breaking even means acting) will then purchase the house.  If the reservation price of the buyers are too low, however, the seller may quit trying to sell the home and wait until the market is more favorable.  This is the current economic state we are in: less houses are being sold, and the ones being sold are sold for lower prices.

Descending Auction