What Drives Property Market Supply and Demand
Property Market Supply and Demand
As with other businesses, the property market is driven by market supply and demand. The more you understand these factors, the better appreciation you have of why property prices may rise or fall. Let’s get started.
At the most fundamental level, when property supply is greater than demand, prices fall. That’s the market nature of almost every product. Similarly, when demand for properties is greater than the available supply, prices rise.
Even though property markets have these principles in common with many other products / businesses, there are some differences worth mentioned. For example, the real estate market also factors in location, seasonality and durability.
There are also different types of real estate – residential, industrial, commercial and land. Of course, real estate is defined as more than just the property. It also includes natural resources and land.
Supply and demand of properties is driven by both local and general factors.
9 Local factors that Influence Supply/Demand
Local factors that influence property rates include:
1 – Restrictions on property production – for instance, in the case of Manhatten, there is not much space to increase supply. As a result, demand remains high and prices even higher.
2 – Credit access – this often depends on where the individual lives. Rural communities may have less access to bank credit, for example – reducing demand.
3 – Job market – the more jobs a locality has, the greater demand for properties.
4 – Transport – the better transport of a location, the more desirable it is for people to decide to move – increasing demand.
5 – Retired persons – retired people often decide to downsize and opt for a smaller property in a different locality, thereby increasing supply.
6 – Families – as families begin to grow, they need greater sized properties. This increases the demand for larger homes, whilst decreasing demand for smaller homes.
7 – Meteorology – destinations with more favorable weather profiles, and ones that avert the extremes of weather, are preferable. Demand in places such as San Diego is significantly higher than tornado alleys of Alabama.
8 – Income – if income levels in a locality are generally high, there is more money in the market to purchase homes, decreasing supply and increasing prices.
9 – Construction market – the greater the degree of construction of new properties, the greater the supply in the market.
Understanding the factors that drive market supply and demand, and hence property prices, is important.
The more informed about these nine factors, the better purchasing / selling decisions you are likely to make. Of course, there are more than just local factors to consider. There are some general factors to think about, too.
For example – designs and styles and fads come and go into “fashion”, and what design/style/fad factors elevate a property price one-year can diminish the price of a property the following year.
When borrowing rates are lower, properties become more affordable. This, too, influences demand. Tax credits, for example – for first-time buyers – can encourage more buyers to seek interest in the property market. As well as this, there are various social factors involved, too – such as the social status afforded to people who own their own home. Age can come into play here, too, depending on the city and what social expectations young professionals have.
What drives property market supply and demand, then, are an interweaving network of factors, many of which play off on one another. It’s acutely important, therefore, to appreciate the impact that these factors have and how they influence property prices throughout the country.
Triumph is the leading Las Vegas property management company. Check back to our real estate blog soon for more great content on property market analysis, supply and demand, and other factors that influence investment choices.
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