Supply & Demand Explained In Real Estate

Real estate, like other markets, operates on the principle of supply and demand. This principle impacts not just the Myrtle Beach real estate market but all markets in general. While there are other factors that affect housing prices, the relationship between supply and demand is one of the most significant.

The basic principle of supply and demand in the housing market is that when there is a large supply of homes available, overall prices for homes tend to decrease. Conversely, if the supply of homes is limited, prices tend to increase. There are, however, scenarios where highly desirable homes in high supply can bring in buyers who are willing to pay a premium price.

Location is another crucial factor that can significantly impact the typical supply and demand model. A well-built home in an undesirable location may experience difficulty selling, while a "fixer-upper" in a highly desirable location might sell well above what is considered the market rate for that type of home.

An over-supply of housing in the market will drive down home pricing. In this scenario, buyers have more options, become more selective, and might consider all available options before purchasing. This can lead to increased competition among sellers, resulting in price drops, and eventually driving the average price of homes down.

Conversely, when there is an under-supply of homes, prices tend to go up. This can occur when people are reluctant to move from a desirable area, and home-owners do not want to sell. This creates a "sellers market." In certain desirable locations, the building supply cannot keep up with the demand for homes. Low interest rates can contribute to this condition. In this market, home prices will rise, sometimes dramatically, leading to multiple offers and bidding wars.

In a balanced market, supply and demand are roughly equivalent. In this scenario, prices typically increase slightly over time, at a level more in line with inflation. Particular markets can shift between balanced, buyer, and seller conditions due to many factors.