What Drives Property Market Supply and Demand
Property Market Supply and Demand
As with many other types of business market, the property market is driven by supply and demand. Property prices fluctuate depending upon the factors that influence both supply and demand.
Knowledge of these factors equips you with the capability of knowing when to rent/buy and, perhaps just as importantly, when to sell.
At the most basic level, when property supply is greater than demand, prices fall. That’s the nature of almost every product. Similarly, when the demand for properties is greater than the available supply, prices rise.
Even though property markets have these principles in common with many other types of products or business services, there are some differences worth mentioning. For example, the real estate market also takes into consideration factors such as location, seasonality, and durability.
There are also different types of real estate – residential, industrial, commercial and land – each of which has their own factors that influence market supply and demand. “Real estate” is defined as more than just property. It also includes natural resources and land, too.
Property supply and demand 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 for added supply. As a result, demand remains high and prices even higher.
2 – Credit access – this often depends on where individuals live. Rural communities may have less access to bank credit, for example – reducing demand.
3 – Job market – the more jobs, the greater the demand for properties.
4 – Transport – better transport translates into greater desirability for people 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 the 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 are important.
The more informed about these nine factors, the better purchasing/selling decisions you can 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. If you are managing a property, you can factor these decisions when determining optimum rent or a selling value.
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 homes. 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, is an interweaving network of factors, many of which playoff on one another. It’s important to appreciate the impact that each of these individual factors has and how they influence property prices throughout the country.
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