Supply and Demand

Supply and Demand: We frequently hear this term, but what does it mean?

Basically stated, the operation of supply and demand is what sets the prices in a market.

In the real estate market when the supply of houses is higher than the demand from buyers for houses, then the price of houses will decline; this is considered a "Buyers Market". When the supply of houses is lower than the demand from buyers for houses, then the price of houses will increase; this is considered a "Sellers Market".

There are many factors which can affect this balance between supply and demand. Some of the major factors include the following:

• Interest rates: the lower interest rates are the more affordable a home becomes, hence increasing the number of buyers; however, as the number of buyers increases the market shifts to a sellers market which leads to increased prices.
• Employment: the better the employment market is the more potential buyers there are, because there are more people with an income available to purchase a home. Also, the more jobs which are created leads employers to competing for fewer and fewer available potential employees, which leads to increased wages, of course, leading to higher affordability, however, as the number of buyers increases the market shifts to increased prices.
• Construction Costs: many factors can affect the cost of construction, such as the cost of energy, transportation, and governmental controls. As these costs go up so does the price of a house, hence decreasing the number of potentail buyers who are able to afford the houses, which forces sellers to reduce the price (and profit) of a house. This decreased profit may lead to lower wages and less employment, which takes the market in the opposite direction.

Notice that with each factor, the market is first affected in one direction and then in the opposite direction. This is partly what makes the real estate market move in cycles. This may lead one to wondering when is the best time to purchase a house. All of these factors which affect supply and demand are important, but they are macro level concerns, which require the actions of many, while the decision to purchase a house on the individual or micro level should mainly consider an individuals personal situation first rather than that of the economy as a whole.

To help you to make the correct decision, feel free to contact the experts at Zenith Realty along with their financial team. You can reach Ron Trzcinski of Zenith Realty at 410-935-5844.