Question

Given the supply and demand forces of a market, what other variables should be included in a housing price model? Provide two variables and explain in detail.

Answer 1

The Supply and demand are the two words economists use most often--and for
good reason. Supply and demand are the forces that make market economies work. They determine the quantity of each good produced and the price at which it is sold. If you want to know how any event or policy will affect the
economy, you must think first abut how it will affect supply and demand.

he terms supply and demand refer to the behavior of people as they interact with
one another in competitive markets. Before discussing how buyers and sellers behave, let's first consider more fully what we mean by the terms market and competition. What Is a Market?
market a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
A market is a group of buyers and sellers of a particular good or service. The buyers as a group determine the demand for the product, and the sellers as a group determine the supply of the product.
Markets take many forms. Sometimes markets are highly organized, such as the markets for many agricultural commodities. In thesemarkets, buyers and sellers meet at a specific time and place, where an auctioneer helps set prices
and arrange sales.
More often, markets are less organized. For example, consider the market for ice mam in a particular town. Buyers of ice cream do not meet together at any one time. The sellers of ice cream are in different locations and offer somewhat different products. There is no auctioneer calling out the price of ice cream. Each seller posts a price for an ice-cream cone, and each buyer decides how much ice mam to buy at each store. Nonetheless, these consumers and pducers of ice cream are closely connected. The ice-cream buyers are choosing from the various icea-eam sellers to satisfy their hunger, and the ice-cream sellers are all trying to
appeal to the same ice-rream buyers to make their businesses successful. Even though it is not organized, the group of ice-cream buyers and ice-cream sellers
forms a market.

• The housing market is a good example of how supply and demand works within an industry.
• When the demand for housing is high, but supply is low, home prices often rise.
• When there is a glut of housing available in a market, homeowners may lower their prices due to less
• demand in the market. Real Estate Supply and Demand

• The housing market, too, relies heavily on supply and demand, which is why it is a much looked-at indicator in the industry. Each housing transaction, of course, involves a buyer and a seller. The buyer places an offer to buy a property, leaving the seller to accept or reject the offer.

• The forces of supply and demand work against one another until the point at which a property's equilibrium price is reached.

look at factors affecting the demand and supply of housing.

In summary.

Demand-side factors

1. Affordability. Rising incomes mean that people are able to afford to spend more on housing. During periods of economic growth, demand for houses tends to rise. Also, demand for housing tends to be a luxury good. So a rise in income causes a bigger % rise in demand.

This graph shows that house prices (and therefore demand for housing can rise much faster than earnings, suggesting there are many other factors influencing demand – at least in the short run.

2. Confidence

Demand for houses depends on consumer confidence. In particular, it depends on people’s confidence about the future of the economy and housing market. If people expect prices to rise, demand will rise so people can gain from rising wealth. In a boom, demand for houses rises faster than incomes as seen in the graph above.

Demand

The law of demand dictates that people will have lower and lower demand for a good as its price rises ever higher. Similarly, lower prices drive demand, meaning consumers value and purchase something more when it's cheaper.

Supply

The law of supply says that a higher price will induce producers to supply a higher quantity to the market. Likewise, when supply is low, prices will rise as people will scramble to buy up scarce resources.

The conclusion is

The housing industry and its economic factors depend on supply and demand because it is a transactional market that uses buildings and properties. The law of supply and demand creates the circumstances in which buyers and sellers interact.

For example, if a town has a high demand and low supply in housing stock, owners often benefit from getting a higher price for their homes. But if there are a ton of properties for sale and only a few buyers, the sellers may end up getting less than their asking price.