How does the principle of "supply and demand" affect real estate?

The principle of "supply and demand" is fundamental to understanding how real estate markets operate. When demand for housing increases—due to factors like population growth, economic expansion, or low-interest rates—while the supply of available properties remains constant or cannot keep pace, property prices tend to rise. This is because more buyers are competing for a limited number of homes, which drives prices up.

Conversely, if there is a surplus of housing—perhaps due to overbuilding or a population decline—while demand stagnates, prices are likely to decrease. Buyers have more options, which can lead to competitive pricing strategies among sellers. Furthermore, the relationship between supply and demand significantly influences market conditions, including trends toward either a buyer's or seller's market. By understanding this principle, real estate professionals can make informed decisions regarding property valuation, investment opportunities, and market predictions. This concept is foundational in real estate economics, thus making it the correct choice in this context.