Basic Economics

Anyone who has taken a basic economics class will recall the principle of supply and demand. The basic tenet of this principle is that, when demand for goods or services is high and supply of goods or services is low, prices go up. When demand is low but supply is high, prices drop. The concept of supply and demand is easily demonstrated in today’s residential real estate market. In the current market, there continues to be more demand than supply overall nationwide, (though of course certain markets have caveats).

While sellers and buyers are experiencing this principle in action, what is interesting are the causes of why demand is high and supply low. 

High Demand for Homes

Current mortgage rates remain lower than in the past, driving buyers to the marketplace. In addition, the pandemic caused many companies to allow alternative working environments, enabling many folks to work from home and therefore changing what buyers are looking for in a home altogether. Remote work has allowed people to rethink where they live as well, creating demands in markets outside city centers, such as we have seen in Granite Bay and throughout Placer County and surrounding counties. Another factor that plays into high demand is that millennials are growing old enough to become of peak homebuying age, increasing the pool of buyers.

Low Supply of Homes

One reason that supply is low is that for over a decade, there has been insufficient new housing construction relative to demand. From an August 2021 article in First Tuesday Journal:

SFR [Single Family Residence] construction starts were roughly level with the previous year in 2020. This type of construction experienced growth of just under 1% from 2019, with 500 more starts over the course of a year for a total of 59,000 new SFRs started. SFR construction will slow in 2021, the result of a damaged economy and cautious builders. Further, compared to the 150,000 SFR starts achieved in 2005 at the height of the boom, the 59,000 SFR starts achieved in 2020 is a fraction of what is needed to meet demand.

Another reason for low supply is that many people were hesitant to sell during the pandemic. There was uncertainty in what the market would bring, and a lot of would-be sellers were hesitant to risk access to their home by strangers. While people are gaining more confidence in selling, it will take some time for supply to catch up to demand.

There has also been a trend for Americans to stay in their homes longer overall, so there are fewer listings feeding into the marketplace. Some stay put due to concerns about finding a new home in a competitive market; others are taking advantage of the low interest rates to refinance and remain in their home; and many are appreciating and rethinking the space they do have and either making do or remodeling their current abode.

It is amazing how many factors influence the residential real estate market, from international supply chains for builders to the pandemic—even the age of our population! The best advice if you are ready to buy or sell is to work with your trusted real estate advisor to do a market evaluation for your specific circumstances and make a strategic plan designed just for you!

Debbie Austin is a realtor associate with Keller Williams, Roseville and has been helping clients buy and sell property in the area for 17 years. If you have a specific real estate question you wish to see addressed, contact Debbie at debbieaustin@kw.com or debbieaustingroup.com.