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The Market 5

Blog by | January 11th, 2009

There are several factors that work together to influence real estate markets; 5 to be exact. The supply of product on the market, the demand for that product, Interest rates, price and the wildcard – human emotion. These 5 factors interact to determine the terms, conditions and the price that a willing buyer and willing seller will agree to on a particular piece of property. Current knowledge about these factors can save you thousands of dollars on the home that you select.
All things being equal, supply and demand work together to determine the price of something that people want to buy. Let’s use diamond rings as an example.
1. There are 10 diamond rings available and 100 people that want to buy them.  The price will go up because the demand for diamond rings exceeds the supply.
2. There are 100 diamond rings available and 10 people that want to buy them.  The price will go down. The supply of diamond rings exceeds the demand.
This is an extremely simplified explanation of how supply and demand work together to determine price.
Let’s look at how these principles affect real estate in our Dawson Creek market place.  
1. Supply
Supply is fairly easy to spot. It is simply the number of homes that are for sale in Dawson Creek.
2. Demand
Demand is the number of people who want to buy property in Dawson Creek at any given time.  We can measure past demand by the number of sales that have been made recently. We watch for trends in demand to predict what the appetite for real estate in specific
3. Price
Price is everybody’s favorite topic when discussing real estate.  “That property is overpriced”.  This is a common opinion of people on the streets in an escalating market. The fact of the matter is, what a willing buyer and a willing seller agree on is what that property is worth. End of story. We watch trends in median price to make sure that we understand the direction and at what rate prices are moving.  Up to date market intelligence can save you thousands of dollars.
4. Interest Rates
The interest rate that the bank gives you on your mortgage affects affordability as much as the price does. Prime rate, the posted rate that banks offer their best clients is currently 4%. The posted rate on a 5 year variable open mortgage is prime + 1, or 5%.  By historical standards this is still very low. Open variable rates have been as high as 6.5% as recently as 2005. To borrow $100,000 at 4% compounded costs xxx per month. At xx% it costs xx.  Like I said, interest rates affect affordability as much as price.
5. Emotion
Two facts that affect every real estate transaction:
1. When there is money on the line, emotions run high.  
2. People will follow what the majority of other people are doing, even if it’s a bad idea.
These are two facts that impact our Dawson Creek Real Estate market as much or more than any of the other factors that we have discussed.  Nobody wants to be the one who missed out on the easy money or the one who hung on past the peak. The problem is that nobody knows where the bottom or the peak is until long after it’s gone. A big part of what we do as Realtors is help you to manage the emotion that’s involved in any large investment.