It’s As Simple As Supply And Demand

So Supply vs. Demand is an easy concept. It applies to nearly everything when it comes to prices and quantities sold. This is no exception.

You have a product, in this case Real Estate, i.e. a house, a condo, a piece of land, etc, etc. The corresponding price of the product and quantity that will sell is based on your changes in supply and changes in demand. As we all know, the number of unsold houses has risen and the number of houses sold has drop. Separately, it should work like this…

When the supply of homes rises, the S curve shifts to the right. Over time, the natural order of the world would see a drop in prices and an increase in sales. We haven’t seen that yet because…

With the economy slowing, demand for homes has decreased slightly, so the D curve will shift down. By itself, this would lead to lower average prices and a drop in sales.

What we’ve seen is a simultaneous drop in demand and rise in supply. This is what is driving the market today. At some point the price will be reached where demand will increase. This would be the equilibrium point where the two curves intersect. Unfortunately, this can only result in lower average prices with the quantity sold dependent on how much demand there is. This is what we call a ‘buyer’s market’, since the buyers have more influence on the market.

This is what makes pricing your home correctly so important, but that’s another post…