UNDERSTANDING SUPPLY AND DEMAND

Written By Jennifer Wilson

When supply and demand are perfectly matched, when ever buyer can buy what they need, and every seller is able to sell all their product, the market is said to be balanced, and prices are stable. This is not an easy market to achieve. Understanding supply and demand can help you decide when to buy or sell properties.

Here is how it works. When there are more buyers than properties for sale, prices tend rise. Then there are more homes for sale than buyers, prices tend to drop. A good source of supply and demand is a statistic the National Association of Realtors(NAR) creates called “months” supply. This tells you how long it takes to sell all the current homes on the market at the current pace of sales. A six month supply spells out a more balance market with  moderately appreciating prices.

Factors that affect housing supply.

Current Inventory –  Inventory of homes for sale consist of resale homes and new construction homes.  NAR estimates the number of existing homes for sale using data from real estate listings. The supply is influenced by how many sellers have their homes listed. Homes are also listed when people sell one house and buy another; this having a net-zero impact on the housing supply.

New Construction – Number of new homes for sale come from survey of builders that the US Census conducts. New home construction changes depend on how easily builders get workers and materials, how confident builders are to find buyers and weather.

Factors that affect demand.

Interest Rates – Interest rates are major factors in how much buyers can and will pay for a property. When rates are low, it doesn’t cost as much to finance a house. They have such a big impact on monthly mortgage payments, mortgage rates along can significantly alter demand for homes. The Fed’s rate hikes hurt demand and slowed home sales – although prices continued to rise because of the restricted supply.

Consumer Financial Health – The broader economy and state of people’s bank accounts have major affects on demand. One way to measure the overall mood, is the Home Purchase Sentiment Index which polls consumers every month about their income, feelings on job security and if it’s a good time to buy or sell a home.

Demographic Changes – The number of people in the market for homes can impact demand. Institutional investors also contribute to the demand.

Supply and demand vary throughout the nation and can be very different depending on where you are. This marks an important reason to team up with a licensed Realtor who has boots on the ground daily.

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