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Understanding supply and demand in real estate

If you ever try to search for a property to buy, you will find out there are different asking prices for the same kind of property in the same area. Maybe you have asked yourself how do prices are created.

Understanding the supply and demand of real estate market can help us on understanding the difference on prices.

The market equilibrium exists when the house supply equals the quantity demanded for housing. Means buyers are willing to buy the same amount suppliers are willing to supply.

Ribeira, Porto - Portugal

The housing prices changes when there's s shift on the market equilibrium up or down. (i. e. the quantity demanded differs the supply quantity on the market)

If prices are lower than the equilibrium price, demand will exceed the supply, resulting in a temporary shortage of housing and an increase of prices.

The opposite happens when the prices are above the market equilibrium there will be too much supply and the prices will follow.

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