First of all, I am not an economist, but I have studied economics throughout my education and feel that I know a thing or two about the nature of economy as it relates to the real world. And, what could be more real world than real estate? There are many laws of economy that will translate effectively to real estate to help explain what we are experiencing here in the United States, and specifically, North Carolina and the Raleigh-Durham area. Among these are the laws of supply and demand, the law of diminishing marginal utility, the law of unintended consequences, and the law of time preference. Of course, many others play a major role in Real estate trends throughout the nation and Raleigh, however, these are chief among them.

The law of supply and demand is the most important element in the real estate market since it directly affects price and opportunity to purchase. The law of supply simply states that when the price of a good rises, the quantity produced does not fall. In fact, the higher price for a produced good usually results in a greater quantity produced. This is the case because a higher price means more profits, so more product is produced to earn higher profits. In comparison, the law of demand states that when the price of a good falls, the quantity does not fall. Usually, the quantity demanded rises with a fall in price. To better comprehend this concept, think of the latest and greatest technology gadget. When the product is new onto the market, the price is so high that many people are not willing to pay the price for it. However, as the price falls, more people are now interested in purchasing the product for whatever reason. It is the same in the real estate market in that more people are interested in purchasing real estate as the price of it falls. Thus, they hope to gain a greater return when they sell in the future.

To put the two laws together, the Law of Supply and Demand states that the equilibrium price of a good is that at which the quantity supplied equals the quantity demanded. The simplified version of this statement is that the actual price you pay for a product is generated by the intersecting of these two points at which the supply and demand are equal. When there is just enough supply to meet the demand, then the price is arrived. In our current real estate market, the supply of homes available is often greater than the demand for these homes. So, this is why many markets around the country have found a decreasing in housing prices to meet up with the demand. However, Raleigh has a higher demand for housing than most parts of the country, and a slightly lower supply. As a whole, we have a higher supply of housing than demand, which makes this a buyer’s market. This means that buyers have an advantage in purchasing homes and often have a better negotiating position.

The law of diminishing marginal utility also plays a major role in the real estate market in that as prices decline, the supply declines. The law states that as one obtains more and more of a particular good, eventually the marginal utility (value from one more unit) declines. In short, this means that as there is more supply than demand, then the price will decline for the new product or home. As you can see, this law is tied greatly to the law of supply and demand.

The law of unintended consequences is another law that affects the housing market, but is often harder to evaluate its effect. The law states that human action, especially governmental acts, have a consequence which was not intended and not anticipated by the actors. A great example of this in the Triangle is the reduction of new construction permits when the impact fees were raised in Cary and now Raleigh. To some extent this was the intent of the increase in fees, but the unintended consequence was the increase in the housing price or the lower grade of materials used in the building of the new homes. Either one will impact the housing market and could keep many potential buyers out of homeownership.

Finally, the law of time preference stated that people tend to prefer to obtain goods sooner rather than later, and will pay a premium (i.e. interest) to shift buying from the future to the present. This is the root cause of the sub-prime mortgage collapse. Too many home buyers wanted to buy today instead of waiting for their situation to improve and buy later. Thus, they signed the dotted line on mortgages that made them qualify based upon today’s rates and not the future rate when the arm matured and interest rates went up. Therefore, their monthly payments were higher than they could afford and when they decided to sell because of it, they found that they also owe more than the house can sell for today. It is a bitter situation to be caught in and very unfortunate, but the desire to buy now forced them to make bad decisions.

Many people in our society have never studied economics or did not pay attention when they took this required course in high school. In my high school, it was a required course that took a semester to complete. However, I am sure that the majority of the students in my class zoned out of this class before the first week was completed. Economics can be a very boring subject and has very tedious laws and nuances. Unfortunately, if you do not learn the basic laws of economy, you are doomed to be a victim of these laws at some point in your life. When people complain about their manufacturing jobs moving to a 3rd world country, they blame the president of the country, but the president cannot change the laws of economy. They are steadfast and true. Additionally, there is usually a law or theory to explain anything that happens in our economy and it would be wise for all of us to learn the basic laws of economics so we are educated when something occurs in our world. Economics is not our enemy, it is our friend.

Due to the Right to Work status of North Carolina, major firms are looking at North Carolina as a place to build their businesses, which in the long run will benefit the property owners in this great state.

Author Bio

Steven was licensed in 1999 and has recently joined the Keller Williams Realty for the opportunity to better serve his clients. He has a BA in Business Administration and has most recently been a sales representative in the Home Improvement industry. His motto in business is to “not just satisfy the customer, but make him/her, raving fans through ultimate customer service.” When not selling homes or meeting with clients, you can find him on the golf course, reading, working with the youth at his church, or watching hockey or sports in general. He and his new bride reside in North Raleigh in their dream home, an English style townhouse. He has no children, but he does have a miniature schnauzer named Snickers. He and his wife are members of the Capital City Club where Steven is the Vice Chairman of the Young Executives Club and chairman of the Philanthropy committee. As Chair of the Philanthropy Committee, he was a Team Captain for the Susan G. Komen Race for the Cure and volunteered for the Jimmy V Celebrity Golf. He has also served on the planning committee for the Big Bad Ball, which is a black tie event that raises much needed funds for the Hospice of Wake County. Additionally, he coaches youth basketball and sponsors a YMCA basketball team. He feels that it is very important to give back to the community.

As a Realtor, he specializes in Customer Service and negotiates the best price and terms for his clients. He makes his living selling real estate, but his life is fulfilled by helping people navigate the home buying and selling process. He aims to make it as stress free as possible. Contact him to see how he can assist you in your real estates needs or visit his website for his buyer’s packet or to search for homes.

Honest! Integrity! RESULTS!!!

Steven W. Nelson, Broker

Ida Terbet Team

Keller Williams-N. Raleigh

Ph: 919-604-6135

Email: StevenW@IdaTerbet.com

Web: www.StevenNelsonHomes.com

Company Profile

 

 

Founded in 1983, Keller Williams® Realty Inc. is an international real estate company with more than 700 offices located across the U.S. and Canada. Keller Williams began franchising its offices in 1991, and following years of phenomenal growth and success, Keller Williams is currently the fourth-largest U.S. residential real estate firm in North America. The company has succeeded by treating its 72,000-plus associates as partners and shares its knowledge, policy control, and company profits on a system-wide basis.

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