Whether you are starting out in the property market or have bought and sold before, understanding the basic principles behind the supply and demand cycle of real estate can ultimately make you richer when it’s time to buy or sell.
Demand
The principle of demand is that where there is a greater need or want for particular goods or services, they will often sell for a higher price. Where there is little demand for goods or services, the price will often be reduced in order to entice people to buy it. In real estate, where there is high demand for a certain type of property in a particular area, and a limited number of these properties available to sell, the price of these properties tends to increase.
Supply
The principle of supply in any market is that when there is an increase in the supply or amount of goods or services, prices will drop. The same is true of property: when there is an increased supply of properties for sale in an area, the price will decrease. However, when there is a shortage of properties, this will drive prices up as multiple parties compete to outbid each other.
Ultimately, supply and demand are interconnected: an oversupply of properties results in a decreased demand for housing, and prices fall.
Factors that influence the supply and demand cycle
To ‘chase’ the supply and demand cycle of the property market is no simple task as it can take many months to put your home on the market, search for a new property, or complete renovations in order to sell for a profit.
One of the main factors that drives demand for properties is lower interest rates. When they are low, people tend to take on larger mortgages. Also more buyers tend to flock to the property market, and therefore the demand for property increases. If, concurrently, there is a limited supply of available properties on the market, the increased demand and limited supply will drive the prices upwards.
On the other hand, an increase in developments and construction in a particular area will lead to more properties for sale, therefore bringing the price of these properties down.
Land is finite
Whether you are looking to buy or sell in a period of increased or limited supply and/or demand, remember that property investment on the whole is fairly sound, as land is a finite resource.
Should you wish to know where your property sits in the current supply and demand cycle, feel free to email us with your details at kathryn@innovativeproperty.com.au or book in a call for a no obligation discussion.
If you’re thinking of selling and would like to find out how our Vendor Advocates ensure you maximise your sale price at no additional cost to you, read more by clicking here.
