Housing Market and Buyers/Sellers Power
We have been experiencing an economic downturn like no other. While we haven’t hit a recession yet, we are seeing recession-like phenomena in the housing markets. I find the housing market to be very interesting. A house is a unique investment. For most Americans, a house makes up most of one’s net worth– both a large asset and liability.
Moreover, the supply and demand of the housing market is highly dependent on mortgage rates. In economic upturns, rates ballpark around 0 – 3%; however, at the moment we are hitting record rates of 7%.
We extensively studied the power of different individuals in networks, and I’m interested in applying that same principle to the housing market between different buyers and sellers. In hot housing markets, the power of sellers is significantly stronger than buyers. Between the start of the pandemic and the middle of 2021, the power of buyers may have been the strongest it’s ever been. Over 50% of houses during that period sold for over asking price, an astonishing number considering that historic homes sell below the asking price.
Below are two figures. Figure 1 represents buyers and sellers in a hot period vs Figure 2 the same group in a low period. From Figure 1 to 2, the power shifts from the inside nodes to the outside nodes.
Interestingly, there are both less sellers and buyers. Typically, when these shifts occur, this creates a cyclical loop of less supply. These changes gradually shift the power to sellers, but not significantly. Overall these changes move the overall power in the market. 