Nate's Nerd Talk | June 2021 | Supply vs. Demand

Dated: June 25 2021

Views: 49

Howdy… Nate here again, your resident nerd.  If you hearken back to your days in Econ-101, you might remember a lesson or two about the law of supply and demand. Simply put, when demand exceeds supply, prices are forced upwards, and when supply exceeds demand, prices are forced downwards.


For the last 7 years, our market has been out of balance in favor of sellers with demand exceeding supply by a fairly considerable margin. In the last year, however, we have seen nothing short of a collapse in supply, while demand has remained very strong. We’ve already spoken about the myriad factors at play that are driving this, so I won’t belabor it any further, but I have been saying for months now that the strong upward price appreciation was just the beginning of what was ahead of us. 

Cromford Index

Our “Market Index” that we speak of so often, is our leading indicator that lets us know that prices will be going up or down, and with this index shooting through the roof, we knew prices were sure to follow.


As of last week, our year over year appreciation measured just shy of FORTY PERCENT!

Why be so dramatic as to bold and capitalize that, you ask? Well, because this is crazy on a level we haven’t seen since 2006 and there is a very good chance this isn’t the end of it. Based on weekly measurements, it is entirely possible that we could see as high as 50% before the end of the year. 

Appreciation

The chasm between supply and demand is so vast that we have 5-6 buyers for every one seller, and that severe imbalance is what drives prices up like this. Buyers are competing heavily to win, and are often paying tens of thousands of dollars above the already inflated list price, and this is how appreciation happens at this scale.


So, where do we go from here? When might prices begin to level off or even begin to drop? Well, the short answer is not any time soon… possibly not for several more years.

As we discussed last month, our market is very definitely cooling and has been for about the last 10 weeks. In most cities, demand is now at or below normal levels, but supply remains chronically weak and so the imbalance persists.

For those that think we’re in a bubble that is about to pop, I assure you that we are not.

When bubble markets pop, demand plummets and supply surges. What we are seeing today is exactly what healthy markets do when they overheat; they slowly cool and it takes a modest amount of time for them to return to equilibrium.

If you’re thinking of buying or selling anytime in the near future and want to discuss your situation, we’d love to talk nerdy with you :)

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