A Simple Guide to Understanding Housing Market Supply & Demand
April 22, 2021
Whether you’ve been in the bidding war trenches for months or are about to pick up your Housing Market Forecast 2021 to start your home search, it’s wise to freshen up on the factors affecting supply and demand.
Fortunately, you don’t need to get on a bus or fill a backpack; we’re delivering the lesson right here, right now. Get ready to learn about demand shifters, the factors that impact a buyer’s and seller’s market, and the housing market 2021 is ushering in.
DEFINING THE FACTORS AFFECTING HOUSING SUPPLY & DEMAND
The factors that affect supply and demand in the real estate market are much more complicated than in other industries. That’s because there are so many moving parts and pieces; seemingly everything is in flux at the same time.
Here’s what we mean: buying a home is not an act of instant gratification. Far from it, in fact. There are lags to account for, whether it’s waiting for a builder to complete home construction or waiting for a homeowner to complete repairs before putting it back on the market.
Interest rates, which are expected to remain attractive according to Housing Market Forecast 2021, are among the other factors that affect supply and demand. Obviously, when homebuyers can pay a lower rate, more enter the market and consequently increase demand. Couple this dynamic with a limited housing inventory, and the conditions are right for prices to rise dramatically.
Housing supply is one of the tougher factors affecting the supply and demand dynamic to nail down. There are just so many overlapping reasons prompting folks to move, from upsizing to homes similar to those found in StyleCraft’s Expressions communities to accommodate a growing family, to downsizing to homes like the ones you’ll find in our Freestyle communities to retire. Then there are first-time buyers, who may be looking for price points and amenities similar to the ones you’ll find in StyleCraft’s Gateway communities. Land development and new home construction are additional factors that affect supply and demand, making it tricky to accurately predict.
A LOOK AT THE SUPPLY & DEMAND SHIFTERS
The forces of supply and demand are far from static; they’re always moving and adjusting in response to a number of factors. Demand shifters include overarching causes such as decreases in household income in a particular market and worries about economic vital signs. Additional shifters of demand may include reductions of apartment prices and mortgage rate increases. Some demand shifters can be even harder to predict, such as changes in social tastes. An extravagant architecture style that used to be viewed as a status symbol may be out of style seemingly overnight.
Then there’s the other prong of supply and demand shifters. Shifts in supply can be chalked up to a large-scale spikes or drops in costs of production and the cost of borrowing. The housing market is also subject to the whims of weather. Long stretches of inclement weather can cause impactful delays in home construction. Lawmakers also hold sway over supply and demand shifters. Changes in local, state, and federal regulations can impact any phase of the homebuilding process.
At the tail end of 2019, factors affecting supply and demand came to include the global pandemic COVID-19. The result was homeowners gaining $1 trillion collectively in home equity over the 12 months beginning in September 2019. Bidding wars became commonplace as the dual impact of surging home demand and historically low housing inventory drove up resale home prices to levels never before seen.
Some experts, including Daryl Fairweather, chief economist of discount real estate brokerage Redfin, believed this behavior to be more a function of supply than demand. After all, mortgage rates have been at record lows — down to 2.65 percent in January 2021 — making the cost of borrowing money extremely attractive.
WHAT DOES SUPPLY VS. DEMAND MEAN FOR HOME PRICES?
Factors that affect supply and demand are closely tied to home prices. For example, right now resale properties are limited, but demand is high, meaning that prices soar. But if the housing market 2021 brings us see an increase in available property, prices could then drop. (This chart is an excellent visual).
Supply and demand shifters are rarely aligned; sellers or buyers are usually favored by some degree. That’s because it takes time for the balance to work itself out. And during these stretches, other factors can pop up.
While the law of supply and demand generally remains the same for resale and new-construction homes, there is a major distinction when it comes to StyleCraft’s homes. Demand shifters that create spikes never directly impact our home prices. So, in a seller’s market, you don’t need to worry about bidding wars as your price will be protected from such surges. But you do need to worry about acting fast if you see the ideal homesite in the picture-perfect community because there will surely be more eyeballs on it.
STAY IN THE KNOW
Some supply and demand shifters let us know they’re arriving well in advance. Others can show up overnight. They can also impact one region while leaving a neighboring county or state unaffected. It’s important to study factors affecting supply and demand right here in Richmond when making big decisions about buying and selling a home. At the same time, be mindful of national trends concerning interest rates, national home prices, new housing starts, and many other economic indicators as they too can shape your homebuying experience.
Sometimes, supply and demand may compel you to wait a little linger to enter the housing market than you had hoped. Other times, you may rush in a bit early. Just know that buying a new-construction from StyleCraft can provide more flexibility, more insulation against market conditions, and a host of other great benefits.