Simulation on Supply and Demand
Simulation on Supply and Demand
One of the most important issues that prospective homebuyers should be aware of while looking to purchase a home is their area’s local real estate market condition. By understanding the different economic trends that a real estate market can be at, the prospective homebuyer will be able to buy a home for a price that is advantageous to them. Although business cycles affect the purchase of a home in a number of ways, one of the biggest influences on a home’s price is the supply and demand in the local real estate market.
Supply and demand is a basic economic principal in which a product’s price is either positively or negatively affected by the availability of the product. Consequently, if there is a high demand for a product that is in low supply, the price of this product will escalate due to market conditions that will support a higher price. However, if there is low demand for a product that is in high supply, the price of this product will decrease due to market conditions that are influenced by the high availability of this product.
By applying this principal of supply and demand to buying a home, it is easy to see how buying a home during a time of high home availability as well as low demand will mean that you will be able to buy a home for a lower price. This is particularly true when comparing asking prices of homes to a time where local real estate market conditions have low supply of homes for sale but high demand of people who want to live in this area. The different points of supply and demand in an area will have a great influence on the asking price of homes for sale. They will also affect a variety of other important financial aspects to buying and owning a home.
There are a number of ways that supply and demand changes in a given area. Although the real estate market is considered to be one of the most stable industries in the United States of America with a strong growth tendency, as evident in the fact that housing prices have never declined nationally in a single year since World War II, there are certain events that will influence the supply and demand in local real estate markets.
National financial trends have an important influence on local real estate market conditions. During times of economic recession, supply and demand conditions will generally improve from the point of view of a prospective homebuyer. Although local real estate markets will respond differently from each other to a national economic downturn, generally what will occur is that real estate market conditions will have a higher supply of homes available for sale than there is buyer demand. This is because a time of economic recession is also a time of job instability. Unemployment rates rise during these periods and there are a number of homebuyers who are forced to sell their home due to their inability to fulfill the numerous financial obligations that come with buying a home. For example, annual mortgage payments and property taxes may become too much of a burden for a homeowner who sees a window of opportunity in selling their home to acquire some much needed capital.
While economic recessions will force many homeowners to sell their homes for financial reasons, these economic conditions also deter prospective homebuyers from buying a home. This is because this period of shaky job security will convince many prospective homebuyers that they should not take on the considerable financial investment required to purchase a home. Therefore, during an economic downturn, generally supply and conditions are favorable for prospective homebuyers to purchase a home for a price that is lower than one they would have to pay for when supply and demand conditions are advantageous to the home seller.
However, it is important to reiterate that a national economic downturn will influence local real estate markets differently. How much effect that the state of the national economy will influence local markets will completely depend on the nature of the area that you are looking to buy a home in. This is evident in the case of the Hartford, Connecticut real estate market in the late 1980s. After experience a spike in home prices from 1984 to 1988 in which average home prices escalated from $87,400 to $167,600; the Hartford real estate market experienced a dramatic fall. Although the national economy was declining in the late 1980’s, Hartford’s local economy was particularly hard-hit, as their insurance industry started to either lay off their workers or relocate to different areas of the country. As a result of this major industry changing within the city, Hartford’s real estate prices dropped dramatically. This was because local business conditions were so bad that the city experienced zero population growth. The loss of prospective homebuyers who are from different parts of the country in addition to the increasing number of homeowners selling