Saturday, April 11, 2015

Housing Market: Supply and Demand

Buying a house is a tricky task for a new homeowner wannabe. That is caused by house price distinction. One may be cheaper than the other. But, what cause this price differences? For example, two identical houses with the exact same land size and building have been built in location A and B. However, the house price in location B is more expensive than the one in location A. Some factors have to affect this differentiation and as simple as others economic aspect, demand and supply control the price.

A high demanding house cost a lot higher than a less demanding house. The most important thing that affects demand of a house is location. Most of the people wanted to live in a safe neighborhood, close to medical service, shops, workplace, reliable public transport, and close to school for a family with children. They tend to choose those criteria in a quite enough area. Therefore, a house on a main road, busy traffic, full of air pollution, and too noisy will make them think twice. It results on house prices in those areas are more affordable than on the first criteria.

After location, a house condition will determine the price. It is a common sense that a bigger house will be more expensive than a smaller house. Also, a worse condition house will be cheaper than a better one. Even sometime the building materials that have been used become one of the influential factors.
Apart from the house direct factors, there are several other indirect elements that influence demand and house price. The first one is economic growth. Economic growth in an area will affect on house demand and of course their price. For example, in a city where the money rotation has been fast the population growth will be too. It will increase houses demand and the price. The next factor is mortgage availability. With this one, even a person with medium salary can own a house. So the target market range will expand.

Demand alone cannot determine the price without considering numbers of supply. When there is oversupply of houses in one area, therefore the houses price will decline. This term usually happen in less desirable location. On the contrary, when there is undersupply of houses in one area, therefore the houses price will ascending. This second term usually happen in a desirable location.

As in other economic aspect, demand and supply determine price in housing market. Demand will be increased by house location and condition, also by economic growth and mortgage availability. Then supply will support demand. If the house supply more than demand then the price will decline in that area. Otherwise, if house supply less than demand then the price will incline.