Free Essay: Factors Affecting Demand and Supply for Real Estate
The real estate business is an interesting business where the supply and demand fluctuates and also it records very volatile prices in the global market. The real estate business has faced a hard hit with the economic crunch. However, it remains a significant entity since real estate properties are a necessity for all kinds of business activities.
The demand and supply of real estate always varies. Supply and demand for real estate will vary from one region to the next. There are several factors that greatly influence the supply and demand for real estate all over the world.
The economic growth of a given region will automatically affect the supply and demand for real estate. When there is growth in the economic status of a given population. More people will be able to afford better housing. More people will also be in a position to take up mortgages and even source for land to bring up their own buildings. When the economic status of a people change, they will want to improve the kind of housing they are using and hence, the demand for real estate will go up.
When there is no economic growth in a given region, the residents become broke and they end up selling their properties. In this sense the supply of real estate will be high. When the supply is too high in a given region, prices go down.
Interest rates will affect the supply and demand of real estate. When interest rates are high the cost of monthly mortgage payment goes up. This makes interested buyers to shy away from buying real estate properties. In a sense, high interest rates reduce demand for real estate. More people will prefer to rent as opposed to buying houses and land. Such a scenario was witnessed in the United Kingdom in the late 1990s. Very high interest rates between 1990 and 1992 made the houses in the region to sell for very low prices since the demand had significantly dropped.
Geographical factors can also affect supply and demand for housing. Areas considered to be more favorable for residence or business will have more interested buyers unlike those that are not. for example, there will be a high demand for beach houses as opposed to houses built in the middle of nowhere in the country.
The topography of the area where the real estate property is located also affects supply and demand. There are regions where the supply for real estate is very low because a lot of landscaping work will need to be done on any real estate property bought there. The cost of getting the property fit for residing or business discourages potential buyers. Therefore the supply becomes limited. There are very many other reasons that would affect the supply and demand for real estate.
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