The basics of real estate supply and demand cycle

The basics of real estate supply and demand cycle

The basics of real estate supply and demand cycle

POSTED BY Ann Paterson ON 23 Jan 2020

Whether you are starting out in the property market or have bought and sold before, understanding the basic principles behind the supply and demand cycle of real estate can ultimately make you richer when it’s time to buy or sell.


The principle of demand is that where there is a greater need or want for particular goods or services, they will often sell for a higher price. Where there is little demand for goods or services, the price will often be reduced in order to entice people to buy it. In real estate, where there is high demand for a certain type of property in a particular area, and a limited number of these properties available to sell, the price of these properties tends to increase.


The principle of supply in any market is that when there is an increase in the supply or amount of goods or services, prices will drop. The same is true of property: when there is an increased supply of properties for sale in an area, the price will decrease. However, when there is a shortage of properties, this will drive prices up as multiple parties compete to outbid each other.

Ultimately, supply and demand are interconnected: an oversupply of properties results in a decreased demand for housing, and prices fall.

Factors that influence the supply and demand cycle

To ‘chase’ the supply and demand cycle of the property market is no simple task as it can take many months to put your home on the market, search for a new property, or complete renovations in order to sell for a profit.

One of the main factors that drives demand for properties is lower interest rates. When they are low, people tend to take on larger mortgages. Also more buyers tend to flock to the property market, and therefore the demand for property increases. If, concurrently, there is a limited supply of available properties on the market, the increased demand and limited supply will drive the prices upwards.

On the other hand, an increase in developments and construction in a particular area will lead to more properties for sale, therefore bringing the price of these properties down.

Land is finite

Whether you are looking to buy or sell in a period of increased or limited supply and/or demand, remember that property investment on the whole is fairly sound, as land is a finite resource.

If you're thinking of buying or selling, selecting the right home or agent can be a stressful process and should be one of careful consideration.

At Ann Paterson Real Estate, our goal is to always to be there every step of the way to field any questions the our clients may have, to stay in constant contact throughout the entire course of the sales or buying process and to have an ongoing connection.

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