Supply and Demand... in Real Estate

Does the principles of Supply and Demand work in Real Estate?

Yes!  Absolutely!  Sometimes to a lesser degree than say a box of doughnuts, but the principles are the same, and the effect is the same.  Let's look at a couple examples:

If there is a new employer in town that is hiring top level software security experts, don't they need homes to live in?  And what type of homes do you think a top level software security expert want to live in?  My guess is they would make pretty good money, and would want their families to live in nice homes, so either a builder would have to come in and build nice homes, or the number of homes available for this type of person may be somewhat scarce, which would drive up the price of homes in the area.  So the principle is the same, the demand would go up, so the supply may go up, but if not, then the prices go up even more.

Now it is also true that the interest rates play a big part in what home prices do as well.  If a buyer goes to his loan officer and gets pre-qualified for a home, typically, here in the U.S.A., the buyer wants to buy as big of a home as they can afford.  So if the interest rates are low, that will allow them to purchase a larger home, if the interest rates start going up, they may start looking at smaller homes.  Also, if the trend continues, and interest rates continue to rise before they are able to purchase a home, the price of homes may start to slip a little, and may even go down a little, however, that usually means their monthly payment will be the same, just more of their payment will go to interest.

Lastly, if an employer who employs thousands of workers in the area closes up shop, moves out of state, what happens to the housing prices in the area they left?  Yep, lots of homes for sale in the area, lots of competition to sell a house quickly means, usually, the savvy seller knows that to sell quickly, you have to make the price EXTRA attractive to potential buyers... that means lowering the price below market average, and if enough sellers want to sell quick enough, the price of homes can go down quickly.  Does this always happen?  No.  But can this happen?  Yes.  And that's how Supply and Demand can affect Real Estate.