One of the most important issues that prospective homebuyers should be aware of while looking to purchase a home is their area’s local real estate market condition. By understanding the different economic trends that a real estate market can be at, the prospective homebuyer will be able to buy a home for a price that is advantageous to them. Although business cycles affect the purchase of a home in a number of ways, one of the biggest influences on a home’s price is the supply and demand in the local real estate market.
Supply and demand is a basic economic principal in which a product’s price is either positively or negatively affected by the availability of the product. Consequently, if there is a high demand for a product that is in low supply, the price of this product will escalate due to market conditions that will support a higher price. However, if there is low demand for a product that is in high supply, the price of this product will decrease due to market conditions that are influenced by the high availability of this product.
By applying this principal of supply and demand to buying a home, it is easy to see how buying a home during a time of high home availability as well as low demand will mean that you will be able to buy a home for a lower price. This is particularly true when comparing asking prices of homes to a time where local real estate market conditions have low supply of homes for sale but high demand of people who want to live in this area. The different points of supply and demand in an area will have a great influence on the asking price of homes for sale. They will also affect a variety of other important financial aspects to buying and owning a home.
There are a number of ways that supply and demand changes in a given area. Although the real estate market is considered to be one of the most stable industries in the United States of America with a strong growth tendency, as evident in the fact that housing prices have never declined nationally in a single year since World War II, there are certain events that will influence the supply and demand in local real estate markets.
National financial trends have an important influence on local real estate market conditions. During times of economic recession, supply and demand conditions will generally improve from the point of view of a prospective homebuyer.
Let’s begin with the theory of Scarcity. The concept of demand is directly relatable to the scarcity of an item. Let’s look at Jackson Pollock’s work for example. If only 20 paintings were available created by Jackson Pollock, there would be a much greater demand than if you could purchase them easily at your local art gallery.
The housing market is very unique as unlike other goods and services, houses have permanence, it is a fixed location good causing the rules of supply and demand to be taken to new extremes. In the case of the Toronto housing market we can view in almost real time the role supply and demand play on he ever increasing house prices, additionally the fundamental economic issue of scarcity is made extremely apparent by the limited size of the city of Toronto.
The housing crisis in America is a major problem plaguing the United States' economy. Before a solution is formulated, one must consider the history of the market and the causes of the problem. And after a solution is formulated, one must present an idea for prevention of the problem for the future.
“The housing market will get worse before it gets better” –James Wilson. The collapse of the United States housing market in in 2008 was one of the most devastating moments for the world economy. The United Sates being arguably the most important and powerful nation in the world really brought everyone down with this event. Canada was very lucky, thanks to good planning and proper preventatives to avoid what happened to the United States. There were many precursor events that occurred that showed a distinct path that led to the collapse of the housing market. People were buying house way out of their range because of low interest rates, the banks seemingly easily giving out massive loans and banks betting against the housing market. There were
The article talks about the problem of housing affordability in Canada, particularly in Toronto and Vancouver, as the price of houses have increased by almost 50% since 2011 (Murphy, "Canada is taking aim at its overheated housing market", 2016). The economic concepts that could be applied to this article are the laws of demand and supply. The law of demand and supply is a basic economic principle that explains the relationship between supply and demand for goods or services and how the interaction affects the price (Investopedia, "How Does the Law of Supply and Demand Affect Prices?", 2017). In general, house prices are determined by the relationship of the supply and demand in the housing market (Investopedia, "How Does the Law of Supply and Demand Affect Prices?", 2017).
In economics, particularly microeconomics, demand and supply are defined as, “an economic model of price determination in a market” (Ronald 2010). The price of petrol in Australia is rising, but the demand remains the same, due to the fact that fuel is a necessity. As price rises to higher levels, demand would continue to increase, even if the supply may fall. Singapore is identified as a primary supplier ...
According to the time’s article, “Rising home prices allow lenders to be more generous with home financing, which allows even more prospective home buyers to access the market, further driving up home prices.” This statement seems simple but there is a more going on that might not be so obvious. Using a supply and demand graph, this information is revealed to us. When lenders become more generous with lending it leads to more prospective home buyers being able to purchase a home which results in an increase in demand for housing. The supply, in the short-term, remains unchanged. Over the long-term, rising home prices will eventually lead to more home builders building homes. An increase in demand results in an increase in equilibrium price (home prices increase) and an increase in equilibrium quantity (more homes sold). When demand increases we can measure the changes in consumer and producer surplus. According to gr...
“Scarcity makes decisions costly and a markets conveniently put a numerical value on those costs. Its called price.” As the population in the Greater Vancouver Area increases the demand for houses also rise. Since the supply of houses is not going up as fast as the demand for houses the housing market must increase their price on their product. As prices of houses continue to rise in the Vancouver area residences will experience labor shortages, as the cost of living will be more expensive than their salaries.
Even a person like me who has no experience in the housing-market and limited knowledge of the economy is able to tell something somewhere is wrong. When in 2001 my parents purchased a brand new house in the western sydney suburbs for around $340,000-dollars. The expected value now in 15-years is estimated to be just under a million-dollars, three-times its original value. However by looking at the ABS-reports you can see the average wage in NSW has almost doubled-since-2001. This must mean that home buyers are allocating more of their money than ever before towards buying a house.
The real estate industry is a critical component in the United States’ economy. There are many jobs tied to the housing industry. Lumber sales, residential and commercial properties, title companies, escrow companies, builders, electricians, plumbers, lending institutions, etc. all play a part in a robust real estate market.
Most people, today, are looking forward to buying their first property. When individuals decide to buy a house those individuals would have to look at all their options and all the advantages and disadvantages that come from purchasing a house. The economy plays a huge role in the decision whether people will purchase a house, purchase a condominiums, or rent property.
With supply solely, factors involved with regulation of the supply also control some aspects of demand. Things such as production costs and desired net profit can determine whether a business succeeds or not. Having a balance between quantity and price is the greatest control any business can have. Pricing is obviously one of the most beneficial, or destructive, parts of a business. Pricing is the first and most valuable thing an individual will look at, which will overrule most other judgments based off of quality and detail. Balancing the price, however, helps to create a pristine product, with just the right amount of detail that will fuel the market, while still generating a steady net income.
When prices increase, the quantity decrease (Graph 1) and new firms enter the market in order to make economic profits. However this does not mean the real estate agents or brokers earn more money. On the contrary, the prices they charge may increase, but the number of houses each sell do not change (Goolsbee, 2005, Online). From this it is evident that the price of products in the real estate market is not affected by the entry of new firms.
In conclusion, generally speaking the Law of Supply states that when the selling price of an item rises there are more people willing to produce the item. Since a higher price means more profit for the producer and as the price rises more people will be willing to produce the item when they see that there is more money to be earned. Meanwhile the Law of Demand states that when the price of an item goes down, the demand for it will go up. When the price drops people who could not afford the item can now buy it, and people who are not willing to buy it before will now buy it at the lower price as well. Also, if the price of an item drops enough people will buy more of the product and even find alternative uses for the product.
That is, it is sensitive to price change, and also to the quantity demanded. This means that if many people are consuming a good, the demand is greater than if less people are consuming the good. To further clarify, take the example of attending college. In an environment where most of an individual's peers are going to attend college, the individual will see college as the right thing to do, and also attend college to be like his peers. However, in an environment where most of an individual's peers are not going to attend college, the individual will have a decreased demand for college, and is unlikely to attend.