Housing Shortage Slows The Housing Market

The housing market is one of the anchor markets in the global economy. It is not possible to have a robust, booming business environment with the market slowing. Notably, people use the housing market for two primary reasons. First is to get shelter and the second one is to store their wealth.

Housing market dynamics

Usually, houses always appreciate such that if one bought a house today at $10,000, it is possible to sell the same at $100,000 five years later. However, this is contingent on market dynamics such as market cycles and inflation. Interestingly, it is no secret that market booms take much longer than periods of market turmoil.

However, it gets difficult when other dynamics like housing shortage get in. Notably, a shortage of housing implies that demand for the houses is much more compared to supply. As such, the market experiences positive destabilizing forces.

Once housing gets in short supply, it is possible to get units that have more than one orders. According to Economics 101, once demand reaches such proportions, the price will shoot through the roof. Interestingly, the increased prices usually spawn another problem, slowing sales.

Boom and bust

Just like any other market, the housing market operates following the laws of supply and demand. Therefore, if the price of one unit goes up, supply is likely to go as many more sellers strive to cash in on the “boom.” Interestingly, this is likely to go on to a certain point such that prices are so high.

Prohibitive house prices imply that fewer and fewer people will be in a position to get their hands on a new unit. Subsequently, there will be a significant dent on demand such that it will not be robust enough to sustain the business. Therefore, this will reach a point where there is a supply glut and without the demand to clear the glut.

Eventually, the housing market will slow down to a point where the boom now busts. It is to say that people will now dramatically lower their prices to get buyers. As such, the sellers will have to make do with huge losses on investments.

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