The current economic times has created many families to be in a state of disequilibrium or deficit. Several years ago house prices were rising, and the demand exceeded the supply. There were housing expansions and new development throughout the state of Alabama, consumers were able to take out easy loans, and several individuals were flipping properties, expecting the housing market to continue to rise. Suddenly the market changed rather quickly, and home values decreased. Investments in the real estate market quickly stopped. The housing supply now surpassed the demand and prices decreased. This created a flood of short sales and foreclosures for many homeowners. Many families were out of homes and became renters. Modification within the marginal pricing of homes was most likely more important to the market equilibrating process than the decrease in average price solitarily. Housing and apartment prices are patterned after the modifications in housing supply and demand. The demand angle includes aspects that are expected to change in price, demographics; household income expected return on a house as well as other factors that are demand shifters. Supply is a schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specific period.
As price rises, the quantity supplied rises; as price falls, the quantity supplied falls. This relationship is called the law of supply. A supply schedule tells us that, other things equal, firms will produce and offer for sale more of their product at a high price than at a low price. (McConnell, Flynn 2009). The supply side within real estate consists of aspects such as location, the houses age and state of housing or institutional factors that facilitates or hinder households access to the housing market, such as financial innovation on the mortgage and housing loan market. With the current economic hardships the housing market predictions are a few years until housing equilibrium.
The equilibrium price (or market-clearing price) is the price where the intention of the buyers and sellers match. It is the price where the quantity demanded equals the quantity supplied. Making use of the example of the real estate market, graphically, the equilibrium price would be indicated by the intersection of the supply curve and the demand curve. In conclusion, this paper described the concepts of supply, demand, and market equilibrium, using real estate as a real world example. It further described the market equilibrating process and compared that to the same real world example.
McConnell, C. R., Brue, S.L., & Flynn, S.M. (2009). Economics: Principles, problems, and policies (18th ed.) Chapter 3. New York: McGraw Hill/Irwin. Retrieved from: https://ecampus.phoenix.edu/classroom/ic/classroom.aspx Onselen, Leith van.( January 6, 2011). The Truth About the U.S. Housing Market. Retrieved from: http://seekingalpha.com/article/245203-the-truth-about-the-u-s-housing-market