The Law of Supply and Demand

A Quick Look at The Law of Supply and Demand

I guess we need our economists to go back to basics so they can understand Toronto’s real estate economy.
“The law of supply and demand is the theory explaining the interaction between the supply of a resource and the demand for that resource. The law of supply and demand defines the effect the availability of a particular product and the desire (or demand) for that product has on price. Generally, a low supply and a high demand increases price, and in contrast, the greater the supply and the lower the demand, the lower the price tends to fall.”

According to TREB, Toronto’s housing demand is up 5.7% year over year while the supply of active housing listings is down 50.5%

This is a clear example of supply falling a great deal more than the increase in demand. This phenomenon causes prices to rise dramatically.

P1 represents price a year ago, P2 represents todays higher price. This clearly shows a supply side problem in the economic housing model for Toronto. We cannot blame foreign investors or speculators for this.