The economics of real estate market

The markets in our world are governed by the rules of supply and demand and real estate market is no exception. The rule is pretty simple. If the demand is high and supply is short, prices go up to cover the gap. Thus, when the property market was booming, sellers could afford to put up more expensive price tags on their pieces of real estate. They were aware that more than one buyer is willing to buy this property and because the demand is high, higher profits can be made.

Appraisal reports in New York, during the property boom, too helped the seller. It wasn’t essentially because New York appraisers were biased but again the law of supply and demand is to be blamed. An appraiser, while estimating the property’s value, looks at the condition of the property and also checks the prices of the properties which were recently traded. Because in  an inflated market, all properties were being traded at a higher price, the appraisal reports in New York supported the trend.

Now if we reverse the scenario we get today’s picture. Since a few years, the property market in New York is experiencing a slump. Income levels have gone down and owners are unable to pay their dues and thus they are in cash crunch. To get out of this situation, they consider the idea of selling their asset i.e. the property.
However, because of the poor condition, there is dearth of buyers. Not many people have enough cash to make such expensive purchases. Once again to fill the gap, in reaction to diminishing supply, prices go down. Properties are now sold at a cheaper tag. An appraiser can judge the condition of the house, but his appraisal findings will be in sync with the market scenario.