Understanding Supply and Demand in Prescott Real Estate
Understanding supply and demand is a fundamental aspect to achieve success in real estate (or any market for that matter). Generally speaking, a real estate market consists of sellers and buyers in the purchase of real property. A number of variables go into pricing within the real estate market; this includes both the supply ‘of’ and demand ‘for’ real property. However, the relationship between supply and demand also exists within all markets, not just in the case of real estate. Many theorize that the relationship between supply and demand in real estate includes the concept of supply and demand directly affecting housing prices.
Supply and Demand
A number of economists believe when you have a large supply of something, such as housing (in real estate), prices will decline with oversupply. On the contrary, if the supply of housing is limited, then prices of houses should go up and increase. Conversely, it would make sense to believe a large supply (or inventory) of housing with high demand would also see a rise in prices. For example, a city with high a number of homes on the market that are also highly sought-after tend to attract buyers to that market. This response would probably see an increase in prices with buyers paying premiums to get into these desirable locations. This leads me to the next topic of location.
Another variable and potential modifier of the ‘supply and demand’ theory within real estate has to do with the infamous saying in real estate, location, location, location. If Realtors recognize one thing about housing prices it’s that location typically has its own affect on them. For example, a home seller could have the best new built home for sale, but if it’s in an undesirable location it might not sell well. On the other hand, we may find a tiny “fixer-upper” cottage in a hot location that sells extremely well and very quickly. The comparison I would use in Prescott can be seen through comparing a new build in Diamond Valley to a home that is 100 years old in downtown Prescott. Typically, home buyers like to be close to shopping and in town with the surrounding amenities found within Prescott. While the home in Diamond Valley may be new and gorgeous inside, some buyers may look down upon the location and proximity to the highway. There are always exceptions to this rule, but definitely, this variable should always be considered.
Housing Oversupply Effects
Moving away from the desirability effect that location can provide, oversupply many times creates a decrease in housing prices. With too many homes to choose from, we can see a surplus of new home inventory, which can then lead to a ‘buyer’s market’. In a buyer’s market, existing buyers can pretty much pick and choose from the properties that are available on the market. Often times, they will be able to control and dictate prices more in this environment. In a real estate ‘buyer’s market’ most property sellers are found competing for the available buyers, this also ensues the dropping of prices to stay competitive.
Housing Under-supply Effects
Another pricing effect or casualty can occur when the buyers in a real estate market have lower viable housing options. From time to time, markets or areas with happy homeowners rarely decide to sell, which creates a housing scarcity for incoming buyers. This will then lead to a ‘seller’s market.’ Also, if the location is so desirable you can see builders having a hard time keeping up with demand. Within both of these scenarios, the sellers in this marketplace can command top dollar if they decide to put their home on the market. Another phenomenon that can create a seller’s market is found within loose lending practices. For example, loose lending policies also create a market where the buyers are able to get more for their money and this can increase the homes currently on the market even more with the influx of money supply and obtainable housing. Today’s inventory levels make the Prescott real estate market arguably a sellers marketplace with less competition on the MLS.
Finding a balance within a housing market around variances of ‘supply and demand‘ is when the available housing supply matches the buyers demand for housing. Housing markets that are in balance usually feature home prices that slightly or progressively rise over a period of time. Although, real estate markets can change and shift from a buyers markets to sellers markets, and vice-versa, in a comparatively short amount of time. Other variables that affect housing prices and should be considered are found within foreclosures and short sales of homes in a market that is shifting character in its area or neighborhood.
Different markets have different pro’s and con’s for both buyers and sellers. It’s important to always understand your marketplace the best way possible to make informed decisions. Luckily, in real estate you can choose to work with an experienced Realtor who should understand market conditions and help his or her client attain the highest bottom line if done properly. Real estate supply and demand curves are constantly changing due to a number of outside factors that include our economy, politics, and even natural disasters (to name the most common). Nobody has a crystal ball, but having an agent who has seen a number of these demand curve shifts gives you the client an advantage.
Prescott Real Estate
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