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In the housing market, like everywhere else, the balance of supply and demand affects how much people are willing to pay to buy something—or, looking at the other side, how much people are willing to accept to sell something.
On any given day, if there is a house for sale and several potential buyers are interested in it, the seller can choose the buyer who offers the highest price. However, if there are several similar houses for sale, and only one buyer looking, that buyer can pick the lowest-priced house.
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When supply and demand are in equal proportion, the market is stable.
But, when either of the scenarios above repeats itself over a period of time, a market trend is set.
Market trends can sometimes accelerate very suddenly, especially when they are fuelled by the media.
For example, in October 2009, the average selling price in our neighbourhood (North York) was $412,000.
Shortly afterward, the supply of homes declined to half its normal level, and interest rates remained extremely low, creating a pent-up demand. In a short time, the average selling price rose rapidly, and by the end of February 2010 it had reached $451,500!
By the end of April it was even higher at $455,000.
However, by this time the supply had returned to normal levels, which prompted a levelling-off of prices.
By the end of May, prices had slowly decreased, reaching only $442,800.
The importance of market trends can scarcely be overestimated: it's not just what your house is worth now, it's what it will be worth in future.
If you'd like more information, or if you have a question that's not covered here, please ask me — I'll be happy to help.
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