| Understanding Supply and Demand in Real Estate
The principles of supply and demand have a significant impact on the success of your real estate investments. Therefore, it’s crucial to carefully consider both supply and demand when looking to buy property in a particular area.
Typically, changes in local demand and supply affect real estate prices, which can be highly localized. If there is high demand and limited stock of a certain property type in a specific location, prices will increase, often selling for more than the listing price. However, if many homes are for sale in that area, prices are more likely to decline.
The basic principle of demand is that prices generally rise when there is greater demand for something, and they fall when demand drops. Demand has its balancing mechanism, where an increase in demand and prices forces demand to ease, leading to price stabilization. Without buyers, supply is insignificant, making demand a significant determinant of real estate pricing.
On the other hand, an area with an increased or oversupply of properties for sale typically experiences downward pressure on prices. New construction activity often balances supply as well, making it a good way to measure the state of affairs in the real estate industry.
Real estate supply and demand are intrinsically interconnected. Oversupply of properties leads to decreased demand for housing, pushing prices down and increasing “days on the market” (D.O.M.). Economic growth, interest rates, mortgage availability and lending criteria, population growth, affordability, wages growth, speculative demand, the supply of housing, and other factors influence both the supply and demand of housing.
Infrastructure projects like roads, transport, schools, hospitals, recreational facilities, shops, private enterprise creating new employment opportunities, and renovations/improvements of existing homes can influence increased demand levels. Conversely, new estates and developments, high-density housing, and people moving out of the area may cause increased or oversupply.
Therefore, it is essential to research and consider the supply and demand relationship, including current and forecasted future supply and demand in the area you intend to purchase. This information will help you make informed decisions and invest wisely in real estate.
Disclaimer: Although all care is taken. We do not give any warranty whatsoever to the accuracy of any content.
This is not meant to be financial or professional advice and is only of general nature. You must seek professional advice before taking any actions. The above information comes with no warranties whatsoever. We take no responsibility for any actions you may or may not take. All content is of general nature only and is NOT to be taken as advice whatsoever