Supply and Demand in Real Estate

The housing market is also largely reliant on supply and demand in real estate, which is why it is such a closely watched indication. Of course, each housing transaction involves a buyer and a seller. The buyer makes an offer to purchase a property, which the seller must accept or reject.

Until a property's equilibrium price is attained, the forces of supply and demand act against one another.

The equilibrium price of a property is determined by the law of supply and demand. A lack of supply or housing availability can cause prices to rise, resulting in bidding wars. Multiple parties may be interested in a certain property, and each will try to outbid the other by raising their purchase price offer.

When the seller accepts one of the offers, a unit is removed from the available supply and the bidding war concludes. House prices tend to rise when there is a high demand for properties in a given city or state paired with a lack of supply of good properties.

House prices tend to fall when the economyis sluggish and there is an excess of properties, resulting in little or no demand for housing.

 

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