Demand and Supply Functions in Economics

In economics supply and demand refers to the relationship between the accessibility of a good or service and the need or wish for it amid buyers (Microsoft, 2009). Our daily lives are affected by supply and demand. Demand is based on the price of a product, the price of related products, and customer’s salary and preference. Supply can rest not only on the price available for the product but also on the cost of similar products, the method of how it is made, and the availability and price of contributions.

In this specific case I will explain how supply and demand has affected my decision to purchase a home (The Free Dictionary, n. d. ). Factors that Could Cause Changes in Supply and Demand I am the Compliance and Closing Manager for a secondary market mortgage company. Over the past thirteen years I have worked in every area of mortgage lending, through the good and bad times. I have seen the effects that cause the changes in supply and demand when purchasing a home. One factor that can affect supply and demand when purchasing a home are is interest rates.

Higher interest rates can lead to less people making the decision to purchase a home because of high mortgage payments. The effect of higher interest rates can cause the supply to increase as homes sit on the market longer. When a home sits on the market for a prolonged period of time, the price can be affected. If the supply is high and the demand is low, for one home to be sold over another, price is also a factor that can increase demand. Homes with lower sales prices affect affordability. The lower priced a home is, the more reasonable it is to a would-be buyer.

Another factor that can affect supply and demand is condition of the home. A home in poor condition is not usually in high demand, but for an investor looking to rehab a home condition may not be a factor. Substitutes for Buying a Home There are several options or substitutes for buying a home. One substitute in lieu of purchasing a home would be to buy a condo. Condos are typically less expensive, have less maintenance since a condo fee is paid for those issues, and are smaller to operate than a home.

Qualifying for a mortgage loan on a condo may be the difference to a potential home owner if they buy a condo over a home. Another substitute would be to rent a house or an apartment. Renting cuts back on maintenance expenses and can allow one to save additional funds towards putting a larger down payment in order to lower the monthly payment. Both are good options to purchasing a home, and a place to live. After my divorce I had to make the decision whether or not I wanted to buy a home or rent.

After looking at the housing market, looking at price, monthly expenses, and the upkeep of buying a home, I decided to rent for a while longer. I substituted my desire to be a homeowner with renting someone else’s based on financial and personal reasons. Complements for Buying a Home A complement is the demand for one product that automatically increases the demand for another. When buying a home one item that a new homeowner may use as a complement may be new carpet, or flooring.

When a buyer purchases a home it rarely comes exactly as the homeowner likes as far as taste and decor. New carpet or wood flooring is a great way to complement a home purchase. Carpet and flooring wears out over time and will need to replaced depending on how old the home is. Another complement is appliances such as a new stove/oven combination. Most home purchases include the appliances; however, depending on the age of the home often the appliances are in working order but may be aged.

New appliances are a good way to add value to a home as well as create better functionality. Homeownership and the Impact on Price Elasticity History and time has shown that the need for homes will always exist. During times when the economy is booming, the demand for homes will shift to the right because the consumer confidence has increased. Our business experienced this in 2006 when interest rates were at an all-time low, lenders made loans available to most anyone who could qualify, and real estate was moving quicker than homes could be built.

Mortgage companies could not process and close loans quick enough; at times builders could not keep up with the demand of customers. Then in late 2009, business slowed quickly when big companies began having trouble staying solvent because of the foreclosure and bankruptcies once those buyers were unable to pay for the homes they purchased during the boom. When the economy took a downturn, the demand for homes shifted to the left because the need was less, consumer confidence faded, and availability of mortgage loan products decreased.

Conclusion Unemployment is up, inflation is up, and the housing market continues to stall. The government has bailed out banks, given first-time homebuyer incentives, and lowered taxes, yet home purchases continue to drop. With high inflation, despite steady interest rates, there are many factors to take into account when choosing to buy a home. My concern is job stability and what is best for me in the long run. At this time I have decided it is best for me to continue to rent until the economy stabilizes and I save a larger down payment.