Demand for property explained
There is a lot of misleading talk about ‘demand’ in the property market currently. As estate agents, we don’t mean to mislead when we talk about demand for property; we simply speak to multiple definitions. I want to take the opportunity to discuss what exactly we mean when we speak of demand and what the current market looks like.
We often speak of ‘high demand’ for housing overall. This is relatively straightforward: more people want housing. The key here is the word ‘want’. People living in an apartment or home with other families want their own space. Those in rentals want to purchase a home. In this respect, demand for both homes and rentals is up.
Unfortunately, one of the criteria for a more economics-driven definition of demand requires that people be able and willing to buy. That is the rub. More people want homes, but their current ability to buy is restricted by two main factors: the availability of homes at a price they can afford, and the ability to secure financing for the property.
Currently, there are a lot of people who want to buy, but not enough who are able to do so, despite continued low prices on homes. There are two main factors responsible for this predicament: lending requirements and sellers unable to offer their homes at prices suited to market demand.
Normally, low home prices coupled with rock bottom interest rates is sufficient to stimulate buying. However, higher loan-to-value (LTV) requirements by mortgage companies are making it near impossible for cash-strapped buyers to qualify. These same restrictions impose the same problem on home sellers – they are unable to squeeze sufficient equity out of the current sales price to allow them to upgrade to new homes. This has led to fewer homes on the market for buyers to purchase, but an increase in privately rented homes.