Builders Have New Reason for Worry

Updated from 11:06 a.m. EDT

The scariest piece of Pulte Homes'(PHM Quote) earnings call Thursday? 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. ...