How Supply/Demand/Interest Rates Effect Values In Metairie

This is not the way the real estate market functions. The law of supply and demand is continuously at work in the market place and may be subtle and not so easily detected, but the effects may be profound. An increasing supply of properties gives those buyers who are in the market more properties to consider. When this occurs, buyers are quick to realize that their negotiating power

increases dramatically as more and more properties are offered for sale. Sellers find that they are in competition with other sellers for a limited number of buyers. Some owners may be more urgent than others and have compelling reasons to sell and this will cause those owners to offer incentives, to quickly lower list prices and at times to aggressively pursue buyers. Obviously when this happens prices are usually influenced downward. As sales of this variety pass appraisers pick up the price at which they sold and factor these new comparables into their appraisals and a dampening effect occurs on the value of property. In other words increasing supply will generally have a negative effect on values. Conversely, a decreasing supply will normally cause values to rise as the sellers realize that buyers are competing for fewer properties and therefore the shoe is on the other foot. A seller’s market takes place and again appraisers in interpreting the market will increase appraisals to coincide with higher comparables. This is supply and demand in a nutshell in real estate. Another highly influential factor on value is the interest rate available to buyers and this of course may not be so subtle. Interest rate increases cause buyers to react adversely-that is as rates rise they may pull out of the market, or they may offer less on properties which they are considering in an effort to lower their payments. This is easily observed with substantial rate increase. Higher rates translate into higher payments and buyers will negotiate harder to buy for less and again values will be negatively effected. Alternatively , please recognize that decreasing interest rates, over a sustained period, will have a positive effect causing values to rise. Once again, provided demand remains constant or increases, a seller’s market may occur. Supply, demand and interest rates have a pronounced influence on the value of real estate. Values in the real estate market are determined by the interaction of buyers and sellers, not by appraisers or real estate brokers. The appraiser attempts to interpret what is going on in the market by analyzing wide ranging sources of information and data, and essentially professional brokers and agents perform in a similar fashion.

The preceding article is subjective and represents the professional opinion of author/

real estate broker, Larry Trunk.