The field of real estate economics is essentially the practice of economics applied to real estate. Much like business economics, real estate economics focuses on pricing, the supply and demand phenomenon, and current trends. While the general aspects of economics play a major role, there is a much finer range within real estate economics where more focus is placed on trends and markets related specifically to real estate.

 

Supply and demand principles of real estate are different from other business economic philosophies, as you cannot simply produce more houses and property to fill a gap like the one you can with a mass produced commodity such as shoes. It takes time to build more housing, and these delays in meeting demand can quickly cause an imbalance.

 

Local conditions will affect the Hawaii real estate market more than anything will. For example, in countries where there is not as much land, the buyer will pay higher prices than if in a country with a boundless supply. Other conditions that are contingent upon location are the demographic factors such as the median age of residents and yearly income.

 

When there is an overabundance of property for sale, prices fall. This is called a buyer's market. When there is not as much property for sale, the owner can hold out for a better asking price, as there is not much else around for the potential buyer to purchase. This is called a seller's market.

 

Real estate economics is also different because the real estate commodity is fixed (unless it is a mobile home,) and the customer has to go to the property. Depending upon the era, living downtown might be the trendy thing to do and then in ten years a mass exodus to the suburbs can occur.

 

The family size of the local area also can affect real estate economics. The larger the family, the larger the houses need to be. When family sizes decrease, those expansive homes are no longer the commodity they were. Divorce rates affect the demand for housing as well since the split of the family has essentially created two households.

 

Certain outside factors such as the cost of building supplies and the interest rate play major parts in the overall cost of housing and the resulting amount of sales. The financial health of the community and nation also play a role in the housing market. When financing companies extend credit to people who cannot afford to repay the loans, those finance companies can go bankrupt and cause a ripple effect throughout the national economy.