Examples of Supply and Demand

Example #1:  There are several modestly priced condominium complexes in Peachtree Corners (supply) but land prices have increased to the point that it is unlikely that any new ones will be built.  As a result, demand for modestly priced condominiums is increasing in the area and supply is stable.  As a result, prices of condominiums are skyrocketing.

 

Example #2:  Demand for detached single family residences is increasing in Hall County causing prices to increase.  More builders decide to build there seeking larger profits and supply increases.  Although demand is up, supply is also up.  The effect is that prices stabilize or increase less than the would in an area such as Peachtree Corners example where no further supply is possible.

 

Example #3:  Demand for 2 story houses will decrease as the baby boomers age.  Prices will most likely decrease unless supply is decreased.  The supply will decrease if people decide to keep their homes instead of selling them at a deflated price.

 

Supply may trail demand in an active real estate market.  Demand in an area can increase quickly while supply may take months, even years to catch up.  Conversely, when an area gets overbuilt because of anticipated demand that never materializes, houses can sit empty for months before selling.

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