Real Estate Market Trends

Real Estate Market Trends

Introduction

Market forces play a large role in the real estate market. In recent years, 2002 to the present to be precise, there has been an increase in new home construction in order to meet consumer's demand for homes as the resale market cannot support the current need. This trend appears to be leveling out according to an article that appeared in U.S. Newswire on April 12, 2005 titled "National Association of Realtors(r): Home Sales to Soften with Firm Price Appreciation." Specific economic principles greatly affect the real estate market such as supply, demand and pricing and these principles will be addressed in this paper.

Supply

In many areas, there are shortages in the supply of real estate. In a press release published in U.S. Newswire, the National Association of Realtor's (NRA) chief economist, David Lereah states that "The market remains favorable for home sellers because housing inventory levels are tight." With the supply of homes being so low, individuals are willing to pay more in order to obtain a home. This also entices home owners to sell their properties larger profits. New home construction also follows in order to attempt to meet consumer's demands. This is follows the law of supply which states "Quantity supplied rises as prices rises, all other things constant." (Colander, p.90)

Demand

According to David Lereah, the current supply of available homes in the United States remains tight. He states, "The simple fact is we still have more buyers than sellers in most of the country." Since all other factors have not remained constant, the quantity demanded has not decreased in the light of the current upswing of housing costs. The law of demand as defined by our text simply states that "Quantity demand falls as price rises, other things constant." (Colander, p. 84).However, some factors have not remained constant in all localities, they are: employment rates, interest rates, income levels and changing population rates. Therefore, the law of demand is not following suit in the current real estate market. However, current speculation is that the market is "cooling," as the time is fast approaching when consumers will no longer be able to pay the going prices for real estate.

Prices

Demand for real estate is directly linked to the prices