BUY NOW! Pt.I
by Evan Vanderwey on 15/05/10 at 1:38 pm
According to Wikipedia, Supply and demand is an “economic model of price determination in a market.” The entry concludes that in a competitive market, price will function to equalize the quantity demanded by consumers and the quantity supplied by producers, resulting in an economic equilibrium . Generally, when demand exceeds supply, prices of a particular item or service are generally higher, and when supply exceeds demand, prices of a particular item or service are lower.
Last month, when home buyers were working hard to sign deals to get at the housing tax-credit money, the DEMAND for homes was higher than it had been in previous months. This was because more buyers were going after the real cash benefit provided by the stimulus housing tax credit.
Not to depress anyone, but the price of homes rose a little because of this. Many home sellers were able to take advantage of this as home buyers were willing to pay a little more because of the money they would be getting from the government afterward.
Everyone is happy (at least in the short run).
Today, the tax credit reservations are on the books. Those who have not sold their home yet will likely have to lower their price. Those buying a home today will not be getting a check after closing like those who made their deal last month, but they will be paying a lower price for the home.
Let’s say that the effect of an $8000 tax credit to the buyer resulted in a $4000 rise in the price. It makes sense. The $8000 must be accounted for in a free market. The seller receives $4000 more for the home than they would otherwise have received and the buyer paid $4000 more for the home than they otherwise would have been able to pay. This is a simple way to look at what is really happening.
It also means that the prices of homes (including the one the buyer just moved into) went down by $4000 the day the tax credit expired.
So what are the take-aways? How do we act now to make the most of the situation?
Over the next couple of days, I’ll be looking at applications for home owners both new and old based on the realities of supply and demand.
