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WHY HOUSING PRICES VARY FROM CITY TO CITY
Published on 07/04/07WHY HOUSING PRICES VARY FROM CITY TO CITY
By Eric D. Brown, MBA - General Manager / Designated Broker - Coldwell Banker DCP & Associates
by Eric D. Brown, MBA
1) Explain why housing prices vary from city to city.
Housing prices vary from city to city and state to state based upon the fact that they are by definition controlled by Nonhomogeneity - which is a (Gonzalez, 2003) "A lack of uniformity; dissimilarity. Because no two parcels of land are exactly alike" (p. 443)
There are many factors that determine an average price for a home in an area, but basically it boils down to simple supply and demand. (O'Sullivan & Sheffrin, 2003) "if demand increases by a larger amount, the price will rise." (p. 80).
In the SF/Bay Area where I have worked as a real estate agent the supply issue is a very big problem and when you mix that with people's desire to purchase cute, new homes instead of older Probate sales, foreclosure sales or simply several decades-old non updated homes we have a real supply issue with new or renovated homes.
Since these new or renovated homes are in such a high demand and sell for much more in the neighborhood, due to Economic obsolescence theories of Appraisal, other homes that are in lesser condition will realize an increase in value.
2) Clearly explain how supply and demand affect the prices of the homes
Every city has its own personality and amenities. People move to a city because of a job or family and maybe lower taxes. People move to areas like San Francisco for more than that. They move to the Bay Area for the Ocean, the Political / Social structure, Sports complexes, Educational Opportunities, Climate, proximity to the Wine Country or winter skiing and summer camping.
Nationally the picture is similar to that of my local SF/Bay Area market where there is a huge demand on housing by the Buyers. According to David Lereah, NAR's chief economist, in his report he said it's a simple matter of supply and demand. (NAR, 2005) "We ended 2004 with a record low supply of homes on the market, with more buyers than sellers nationally, what we're seeing is a natural pressure on home prices as buyers compete to bid on available properties." (para. 4)
These lifestyle extras create demand for housing, and since there is a shortage of desirable (and non-desirable for that matter) housing here the prices have steadily risen without experiencing any prolonged plateaus or setbacks. ----
Eric D. Brown, MBA is the General Manager & Designated Broker for Coldwell Banker DCP & Associates in Daly City, CA. He can be reached through his website: www.CondosOrHomes.com or by calling: (650) 444-9067.
Gonzalez, I. (2003). California Real Estate Economics, Second Edition. Chicago, IL: Dearborn Financial Publishing, Inc.
O'Sullivan, A. & Sheffrin, S. M. (2003). Economics Principles and Tools, Third Edition. Upper Saddle River, NJ: Prentice Hall
NAR (2005). Record Number of Metros Show Double-Digit Home-Price Gains. Retrieved Feb. 21, 2005 from, http://www.realtor.org/publicaffairsweb.nsf/Pages/RecordHomePriceGains?OpenDocument