Supply and Demand
The forces of supply and demand in the market determine how prices for goods and services are set. Essentially, when supply increases and demand remains stable, prices go down, when demand increases and supply remains stable, prices go up. Greater supply means producers need to attract more buyers, so they lower prices. Greater demand means producers can raise their prices because buyers compete for the product.
Supply and demand in the real estate market
Two characteristics of real estate govern the way the market reacts to the pressures of supply and demand: uniqueness and immobility.
Uniqueness means that no matter how similar two parcels of real estate may appear, they are never exactly alike. Each occupies its own unique geographic location, and two properties are never exactly the same inside.
Immobility refers to the fact that property cannot be relocated to satisfy demand where supply is low. Nor do buyers necessarily make relocation decisions based on greater housing supply in a certain locale. For these reasons, real estate markets are local markets.
When supply increases and demand remains stable, prices go down. When demand increases and supply remains stable, prices go up.
Factors Affecting Supply
Labor force and construction costs
A shortage of skilled labor or building materials or an increase in the cost of materials can decrease the amount of new construction.
Government Controls
Local governments also can influence supply. Land-use controls, building codes, and zoning ordinances help shape the character of a community and control the use of land.
Governmental Financial Policies
The government’s monetary policy can have a substantial impact on the real estate market. The Federal Reserve Board establishes a discount rate of interest for the money it lends to its member banks. These interest rates play a significant part in people’s ability to buy homes.
Governmental agencies, such as the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA), also have impact by insuring or guaranteeing loans.
Policies on the taxation of real estate can have both significant and complex effects on the real estate market. Real estate taxation is a necessary source of revenue for local governments.
Factors Affecting Demand
Population Shelter is a basic human need, so the demand for housing grows with the population. Although the total population of the country continues to rise, the demand for real estate increases at a faster rate in some areas than in others.
Demographics  Demographics is the study and description of population. The population of a community is a major factor in determining the quantity and type of housing in that community. Family size, the ratio of adults to children, the ages of children, the number of retirees, family income, lifestyle, and the growing number of single-parent and empty nester households are all demographic factors that contribute to the amount and type of housing needed.
Employment and wage levels Decisions about whether to buy or rent and how much to spend on housing are closely related to income. When job opportunities are scarce or wage levels low, demand for real estate usually drops
