An explanation of the correlation between the movements along the supply and demand model and the recent steep rise in housing market prices please? My brain refuses to grasp the concept.
In: Economics
There are more buyers than usual, at same time fewer sellers than usual.
Due to COVID, people were at home more, needed space to work, for kids to do school, wanted a yard for personal outdoor space, etc. many apartment dwellers decided it was time to buy a house. Many starter home families decided it was time to upgrade to a larger home. People already planning to make such leaps were already in the market. Others who’s maybe planned to do so in a year or two moved their purchase forward. And some may have even decided to make new lifestyle plans as a result of COVID, ie. relocate to new area given permanent work from home, give up urban living for suburbs, buy a second house in a vacation place.
Also fueling demand is low interest rates. A $400k mortgage at 5% costs same monthly as a $500k mortgage at 3%. Low rates make buying affordable to more potential buyers and increase buyers’ budgets, which also increases demand at each price point.
At same time, there are fewer houses on the market compared to usual. As people move up the housing ladder, there needs to be a supply at each level. But baby boomers looking to downsize stopped selling. They didn’t want strangers coming into their homes. They didn’t want to travel to look at retirement homes in Florida or Arizona. Their adult kids who lived alone in apartments decided to come back home to ride out pandemic. So they stayed put. Which meant lack of family homes for sale. And when buyers of larger homes can’t find what they want, then they don’t sell their starter home, limiting inventory of starter homes.
So you have, say, twice as many people as typical looking to buy at any given time while inventory of homes for sale is at record lows, affect supply-demand curve on both fronts.
Latest Answers