Question

Now that you have a better idea about how markets work, you can do a little mental forecasting. You can ask yourself “how do I expect prices to change in this situation?”   Take the market for housing and the current situation we are in with the pandemic.   What do you expect to happen to home prices over the upcoming months: rise, fall, not change? In real estate lingo do you think this will be a buyer’s market or a seller’s market? Explain your answer. Has to be 300 word count!!

Answer 1

Keypoints:

1. The current pandemic situation has resulted in a global economic crisis.

2. Economic crisis causes fall in the demand due to increased unemployment and fall in wage rates.

3. Real estate developers are likely to sell/liquidate their assests at a discounted rates to meet the cash requirements and keep the business running.

4. Most of the governments are already taking measures to increase cash flow in the economy and maintain demand.

5. During expansionary fiscal and monetary policies, interest rates usually falls to increase the disposable income of the people.

Explanation:

In the current situation, the widespread pandemic has severely affected the economies. The restriction in movements and closing down of a number of economic activities has resulted in increased unemployment rates. For those employed, the wage rates have fallen sharply. The saving rate has dropped as people are in urgent need of cash to meet their immediate requirement. The investment rate has also declined. This implies that the global economy is experiencing a period of recession.

In this scenario, the market for housing is likely to experience a major hit. The unsold inventories will lead to budgeting problems, making it difficult for some real estate firms to survive. In most probability, this situation will cause a fall in the home prices over the upcoming months. Therefore, the producers are likely to offer reduced prices for housing units to attract customers, in order to recover their production cost and survive the downward phase of the business cycle.

So this was the supply side of the story. But what about the demand? During this recession, the unemployment rate has gone up. Most people have limited or no source of income. Then how will people invest in the housing market?

Well, during recession, governments adopt various means to boost economic growth. This is done by keeping up the aggregate demand to fuel the economy. One such means is to adopt expansionary fiscal and monetary policies.

Under these policies, measures are taken to increase the disposable income of the people. Interest rates are reduced to encourage investment. Such a situation provides a good opportunity for buyers to invest in housing market for asset creation.

By evaluating the situation, we can say that in the coming months, the real estate shall be a buyer's market. This is because buyer's will have a larger control on the prices.