Determinants of Demand and Supply

Sustained economic growth, low inflation and resultant low interest rates start to increase mortgage demand and put pressure on house prices. Comparing cities doesn't offer accurate postulating because price-to-income and price-to-rent ratios vary widely from city to city. An unexpected rise in real interest rates that raises housing costs, or a negative shock to a local economy, would lower housing demand, slowing the growth of house prices, and possibly even leading to a house price decline. When the market demand for properties in a particular area is high and when there is a shortage of good quality properties (i.e. supply is scarce) then the balance of power in the market shifts towards the seller. Conversely when demand both for new and older housing is weak and when there is a glut of properties available on the market, then the power switches to potential buyers. They have a much wider choice of housing available and they should be able to negotiate a price that is lower than the published price.

When the demand for houses in a particular area increases (perhaps because of an inflow of population into the area, or a rise in incomes following a fall in unemployment), there is upward pressure on market prices.

The main determinants of demand and supply are:

Determinants of demand Determinants of supply

Price of the good / service Price of the good / service

Income Costs of producing the good / service

Price of substitutes / complements Objectives of the firm

Tastes Profitability of alternative products

Expectations of future price changes Shocks

Determinants of demand for houses Determinants of supply of houses

Price Price

Income / level of economic activity The price of land

The level of rents The cost of building materials

Interest rates

Expectations of future price increases

The ratio of income to house prices

In looking at homes and comparing them from city to city, a single family home in Atlanta can start at 56K for a home built in 1972. A home in Miami, Fl.., would start at 119,999K for a home built in 1993, and in Las Vegas, Nevada 100K for a home built in 1982. Prices vary not only city to city, but depending on amenities, upgrades, location, and sq. ft. Atlanta has seen a steady appreciation of housing prices without the skyrocketing increases that have pushed other large markets toward a bubble. Atlanta is currently among the lowest nationally for affordable housing. Average median price for a home in this area is $230,000 for a 3bedroom 2.5 bath. Atlanta and it surrounding areas are a great place to raise a family. In the past year I have seen an increase in the number of people moving her from Florida, New York, and California. The