head: Running SUPPLY AND DEMAND
1
Supply and Demand
Brandon Tate
XECO-212
September 24, 2011
Angela Smith
SUPPLY AND DEMAND
2
Supply and Demand
The conditions of the housing market in the area where you want to buy a new home are
going to be a big factor in your purchase. Local market conditions can vary greatly across
different areas and being aware of these differences can allow the consumer to purchase a new
home that best suits them and that will give them something that will build equity in their future.
New home costs are always affected by that supply and demand. The amount of homes
for sale can establish either a positive or negative effect on the price of the home you purchase.
When there are not many homes for sale in an area the homes are more likely to be sold at a
higher price due to the fact that there will be a higher demand. The opposite is also true. When
the amount of homes to purchase is high the cost of the homes is going to be lower. When there
is excess of a product lower prices will stimulate sales to get rid of the excess product.
The purchase of a home is a purchase not like any other and requires great planning and
consideration of all the different factors that come into play. A home is a necessity that we all
need and we do so by renting or purchasing a new home. There are those among us that have
been able to make this necessity a way to make a profitable future for themselves. The possible
customer must be very intuitive with who they are making these kind of purchases from. The
purchase must be approached with a great deal of studying and analyzing so that the customer
can get the best deal possible.
Housing demand will increase as consumer self-confidence increases. A fake sense of
customer self-confidence was formed during the last ten years when adjustable rate mortgages
and variable rate mortgages were in open use in the housing industry. These kinds of mortgages
were used by companies to attract buyers into assuming an adjustable rate mortgages at the time
of purchase due to its rewarding outlook. Its rewarding outlook was cause by the initial low
SUPPLY AND DEMAND
3
monthly payments that the consumer would have to pay. These payments did not last and in time
would greatly increase. (Adjustable-rate mortgage, 2009). Many of the buyers soon found out
that they could not afford the higher monthly payments and as a result ended up faulting n there
payments which in turn caused a default in their loan and lead to the loss of their homes. The
place where the consumers got their loans then take the foreclosed homes and sell them to
different individuals at a lower cost in many instances to just break even. This same kind of issue
is used in all kinds of sales of products and has lead to the current crisis that is plaguing our
economy. This issue caused has a great slow down in the housing market. To try and help
alleviate some of the stresses brought on by the mortgage issues the government came out with
assistance programs that will give tax-rebates of up to $8,000 to a new home buyer. With these
assistance programs our economy is starting to reconstruct itself. There are several factors that
took part in our slow recovery and that includes the customer awareness of how unbeneficial the
old mortgage scams really are.
There are a few of substitutes that the consumer may consider if need be. There are
mobile homes which although looked down on some can be a cheaper alternative to the purchase
of a traditional built new home. The consumer may also choose to rent instead of purchasing a
new home if the market is not currently in their favor. Used homes are also a substitute for a
new home. Used homes can be purchased at a lower price with lower payments but also still be
a purchase that will give the consumer some kind of equity for there future. The price elasticity
of demand for new housing will be elastic due to the alternatives in housing that the consumer
has.
There are also a few compliments that take part in the purchase of a new home. In the
last decade we have seen a large increase in the amount of money that it cost to purchase the
SUPPLY AND DEMAND
4
materials that are needed to build a new house. The elevation in price of wholesale and metal
prices has added around 5,000 to 7,000 dollars to the cost of an average sized home (Housing
Economics, 2004). The governments raise in minimum wage is also a factor. The rising cost to
the payroll for the construction companies is being offset by charging the consumer more for the
construction of their new home. These increases to the price of the home will lower the demand
in sales.
After a large decline in the past decade the new home construction has begun to slowly
rise again. The government programs, fixed rate mortgages that are at record low levels and
consumer interest are the factors that are behind this increase in construction. The price
elasticity of supply for a new home would be elastic. The price elasticity of supply is elastic
because when the price of homes dropped due to low sales the construction companies in turn
started producing less homes.
SUPPLY AND DEMAND
5
References
Adjustable-rate mortgage. (2009). Wikipedia Database. Retrieved August 22,
2009, from http://www.wikipedia.com .
Carliner, M. (2004, March). Inflation In Materials. Housing Economics, 1(13), 7-9.
July U.S. home sales surge more than 7 percent. (2009). Kitsap Business and
Economy. Retrieved August 23, 2009, from Kitsap Sun database.
Single-family home building rises for 5th month. (2009). Associated Press,
Retrieved August 23, 2009, from http://www.timesrecordnews.com .