Probably the most important factor affecting real estate price inflation, as most real estate brokers and agents can attest, is the relationship between supply and demand in the real estate market. A brief refresher…A buyers market – one where there is an influx in homes to be bought; i.e. more listings. A seller’s market – one where the inventory is low thus, increasing the demand for homes to be bought/sold. i.e. a shortage of homes for sale. In today’s market, there is a huge shortage of listings/inventory, encouraging buyers to become more aggressive. Recently, we have seen buyers involved in bidding wars, resulting in many offers way above asking price. In San Diego, this does have a lot to do with the ‘summer buying season’ but, bidding wars in what is supposed to be a ‘down economy?’ What gives?
Although supply and demand in the RE market is affected by a multitude of factors: employment, investment, savings, population growth, taxes and so on, the demand for real estate is fundamentally produced by the availability of mortgage funds that are facilitated by lenders. BUT, do not be fooled by low interest rates of late. YES, interest rates are low at the moment, but as educated buyers, one has to assess the underlying factors that create these low rates. One example: With more homes being in default than any other time in our country – thus, more foreclosures creating more REO’s right? nope – we are not seeing many REO’s for sale these days. The banks have strategically created a shadow inventory (held but not for sale) to manipulate a market geared toward buyers and can control – to an extent – how many homes are for sale on the market at a given time. Lowering interest rates during a shortage of homes for sale only increases the urge for hungry buyers in ‘their’ market. All in all, low interest rates and a lack of homes for sale has created a market different that any other market we have seen in quite some time. An educated RE professional can help steer you toward your buying/selling goals.