Real Estate Price Increases - Is It Simply Supply And Demand?

Posted by Ed DePrato on Thursday, July 10th, 2014 at 2:38pm.

It seems everyone has an opinion of real estate values in Edmonton. Yesterday the young woman serving our table at lunch made friendly conversation and casually mentioned that she was excited to move into her new condo. It was her first purchase and clearly she was very excited. She mentioned that others from work and some friends were all in the market looking for homes too and that with all this buying activity it was obvious to her that prices would continue going up.

This ties into my post from yesterday so I thought I'd expand on it. She was describing the concept of supply and demand; when demand exceeds supply, prices go up (a sellers’ market) and conversely, when supply outpaces demand prices go down (a buyers’ market). But is this the whole story of price increases and decreases?

No, there are many other factors to consider. We also need to consider the effect of increased costs to produce products. Costs don’t stay the same; employee wages and the cost of raw material, fabricated goods, delivered and manufactured products that go into the homes all go up over time. Regardless of demand, costs for products in general will continue to increase because of the increased cost to produce those products. Demand will also pull up the cost of the products we put into our homes as more buyers line up to buy particular products.

So, the factor for the cost of a home is not only supply and demand for the home itself but the cost to produce the home and the demand for the products used in it. These are the factors that affect the price we pay for the homes we live in. However, that’s just talking about price. Value is entirely different which I’ll go over in an upcoming post.

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