Jan

31

Real Estate Market: Supply Vs. Demand

Filed Under Sellers | 2 Comments

One of the statistics that seems to elude most homeowners when attempting to price their home is the simple, yet important, supply vs. demand economic factor. Going back to economics 101 (and this may hurt your brain a little bit), if you can remember the simple equations that follow, you’ll have a better understanding of how the market is impacting your home’s value.

1. When Supply of a Product (your home) is low and demand (buyers) is high, home values will increase (2002 through 2005).

2. When Supply of a Product (your home) is high and demand (buyers) is low, home values will decrease (2006 through ?).

Below is a thumbnail of a graph that we’re using to show the national averages of these two important factors.
Supply Vs. Demand

Click here to enlarge this graph.

As you can see, the red line represents the months of supply that are currently on the market. Months of supply represents how long it would take to sell all the listings (on a national average) if all activity stopped today. The graph shows 11 months of supply. And the bad news for Long Island homeowners, the average is nearly 20 months (and higher in Suffolk). The blue lines represent the number of sales for each year and month.

It’s very obvious that the two are headed in opposite directions. The separation between the two is what’s causing the further decline of home values. This graph demonstrates the need for homeowners and Realtors to come together and price the product (your home) correctly. Prices right now, are too high for the demand.

There are buyers out there right now. There’s just not enough to match the amount of homes on the market. As new construction homes continue to decline, this will help homeowners (resales) because it will effect inventory (the less homes going on the market the better for everyone). Additionally, as FHA loans become increasingly available to buyers, the buyer pool, which was hurt by the expansion of sub-prime lending, will begin to level off and most likely will raise the amount of demand (more buyers able to get affordable fixed loans).

Through all of this, homeowners must continue to adjust prices in a downward trend to match the demand. It’s also up to real estate professionals like me to help homeowners price their homes correctly.

For a free comprehensive market analysis of your home’s value, please call me at 631.587.1700, ext. 51. If you are located outside of Long Island, call me and I will use the largest network of qualified professional Realtors in the Coldwell Banker database to find you the expert you need.

(c) Copyright 2007, www.tommcgiveron.com

By Tom McGiveron


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2 Comments so far

  1. Tom McGiveron | LI Real Estate on February 29, 2008 10:17 am

    [...] sellers to avoid foreclosure, the market is being corrected. In a previous article entitled, Real Estate Market: Supply Vs. Demand, we looked at how the basic principles of supply and demand are impacting prices (when supply [...]

  2. Tom McGiveron | Long Island Real Estate Market | Coldwell Banker Realtors on October 31, 2008 7:40 am

    [...] months of supply throughout the Long Island real estate market has declined as well from 19 months last year to 14.8 [...]