Have you ever heard the phrase “buy low, sell high”? This is a basic concept in economics – when there is an abundant supply of something, the price goes down. Conversely, when there is a limited supply of something, the price will go up due to increased demand. Real estate is no exception to this rule. When it comes to real estate, understanding the relationship between supply and demand can help explain why home prices crash.
Supply and Demand Basics
In economics, supply and demand refer to how much of a product or service is available compared to how much people want it. The more scarce something is relative to its desirability (demand), the higher its price will be. When there are many sellers for a given product but few buyers (low demand), prices go down because sellers must compete with one another by offering lower prices. In other words, low supply + high demand = high prices and vice versa.
Real Estate and Supply & Demand
The same principle applies when it comes to real estate. When there is an abundance of homes on the market with few buyers interested in purchasing them, home prices crash as sellers compete for buyers by dropping their asking prices. On the flip side, when there are few homes on the market with many people looking to buy them (high demand), prices tend to rise as competition among buyers pushes them higher and higher.
Why Home Prices Crash
So why do home prices crash? While it’s impossible to predict exactly what combination of factors could lead to a housing market crash at any given time, some common causes include an oversupply of homes (an excess of new construction or too many people selling their homes) combined with weak consumer confidence or economic recession that leads potential buyers out of the market altogether. Additionally, falling interest rates can lead speculators into buying properties they cannot afford which causes them to default on their mortgages leading to foreclosures which further drives down home prices as inventory rises again due to more houses being put back into circulation.
Home prices crashing can be caused by any number of factors related to changes in the real estate market such as an oversupply of homes combined with weak consumer confidence or economic recession that leads potential buyers out of the market altogether along with falling interest rates leading speculators into buying properties they cannot afford which then leads to foreclosures driving down home prices even further when those properties are put back into circulation again. Understanding these dynamics can help investors better prepare themselves for changes in home pricing so that they can make informed decisions when it comes time for investing in real estate markets. In any case, being aware of these correlations between supply and demand in real estate can be invaluable knowledge for anyone looking to buy or sell property! Are you thinking about buying or selling a home this Spring? Do reach out!
