Q&A: Why does the value of a home depend on the demand for homes? What factors influence the demand for homes?

Question by lolololo: Why does the value of a home depend on the demand for homes? What factors influence the demand for homes?
Why does the value of a home depend on the demand for homes? What factors influence the demand for homes?

Best answer:

Answer by Daniel S
it goes back to econ 101. the principles are the same, but for sake of argument lets assume people want to buy gloves (each one is unique). we will also assume that instead of a fixed price people can haggle with the cashier.

let us say company a makes 100 gloves because they think about 100 people want to buy them. Let us assume they were right and 100 people want to buy them. Everyone will pay what they think the gloves are worth plus a little bit (a premium) so they can get the pair they like the best before someone else gets them.

Now suppose 110 people want to buy those same 100 gloves. people will pay a higher premium to get the gloves because they know that more people want them overall and there is a greater chance someone wants the pair of gloves that they really like.

suppose only 90 people want to buy gloves. people won’t pay a premium at all and will actually bid less than they think the gloves are worth because they know that at the end of the day 10 pairs will be left over so even if they don’t get the one they want they will be able to get a pair of gloves.

now apply the above scenario to housing. if only 90 people want to buy 100 houses the price will be lower than if 100 or 110 people wanted to buy the houses. no one knows the exact numbers but it is pretty easy to get a general idea of when there is alot more supply of houses than there is demand for them and vice versa.

other factors:
the economy: if more people lose their jobs fewer folks will be able to afford homes, reducing the number of buyers

where the house is. in any financial venture there are three things that are key to success: location, location, location. if your house is in a beautiful and convenient spot you will get lots of demand. the opposite is true as well. similarly if a city is ugly few people will want to move there.

jobs in the area. if there are alot of new jobs being created in the area values will go up because people invariably want to live close to work

there are plenty more but it is largely area specific and there isn’t a general rule you can follow

Know better? Leave your own answer in the comments!

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