Which factors will be crucial to decide the price in the Housing market in United States for upcoming decade?

 Real estate is considered as an asset that comprises the property and the land on which it is built. Because of this reason, housing is considered as a significant wealthy status in all around the world.

The similarity lies in the variability of  price of the land and material of building as well as other factors. Which is highly dependent on supply and demand. With more demand, prices tend to rise; with more supply, they tend to fall. This is as simple as we can see without deep diving.

Now Let us deep dive in this problem and reach to the conclusion with some methodical approach. Let us try the MECE framework.

 What is MECE Framework? 

MECE is the framework we use when need to break down the problem into the options by sorting them.MECE is consisting of two categories overlapping:

(1) Mutually Exclusive: Items can only fit into one category at a time

(2) Collectively Exhaustive : All items can fit into one of the categories.

After applying the MECE framework, results can be represented using various formats like issue tree, desicion tree and hypothesis tree.

In our case, We need to see the factors affecting the prices of houses in upcoming decade which is not a desicion and even not an issue so we need to choose structure like mixture of hypothesis tree and issue tree which will lead to insights and desicion making.

 Level 1 : Supply V/S Demand

If supply is relatively more than the demand, houses are abundant for sale, but no one to buy them.the houses will sell for much less than the asking price.

If the demand is more than the supply, more people buy but fewer houses to sell, which means multiple buyers biding on a single property, it is bound to sell for much higher than the asking price.

Basically both supply and demand are the factors which are having co-dependance or correlation with each other. these factors are needed to be balanced.

Let us deep dive in both factors by expanding the horizon of consideration

 

Supply:

The supply of the houses depends upon two factors, 

(1) Permission to build 

(2) Time and cost to build 

which can be broken down further into many other factors.

Let us move forward to the first factor.

As we can see that, Land availability and government laws of United States can directly affect the supply of residential lands.

Now we will move for second factor

As we can see that advancement of technologies applied to building the housing and advancement of piping and material in terms of quality,durability,texture,preservation.

Weather and land condition  with labors and wages also proved to be having the substantial part affecting the overall scanerios.

From the above figures, in some cases we can conclude that the hypothesis shows the supply increase and as a common conception: Increasing supply will lead to decreasing prices but that is not applicable in all the cases as we need to also consider some things into the account like All the hypotheses are not equally weighted which is because some hypotheses  will have more significance at a particular instance of time and situation.

Now we have seen the supply factor of categorization, now we will see the demand factor.

Demand:

The demand for houses depends upon following factors:

(1)Wage 

(2)Trends 

which can be broken down into smaller factors.Many more factors include recession, interest rate, credit availability, etc.

Lets dive deep in the first factor for insights

Wage:

As we can see in the above figure that federal spending and state economy is insighted from the inflation and we have seen the inflation and the recession in the current period which will affect the future demand of house buying and overall demographic  of United States.

now let us move on to the second factor

Trends

As we can see in above figure, Trends can be break down among  2 factors of innovation and situation which is elaborated in the given figure.

 The most important factor in weighing the hypotheses is

(1) How fast will it come to fruition?

(2) Is it affecting the market right now?

In the case of demand, all the hypotheses have an immediate impact. In the case of supply, there is only one factor with hypotheses that have an immediate impact, that too against the growth of supply, which is labor.

Building houses, regardless of how much  great the technology gets and considering the factors of success, will take time. Whereas the fluctuations in demands are immediate. Hence, the house market prices will rise up  for current period.

References:

(1) https://medium.com/@rohit18115/the-housing-market-in-the-united-states-for-the-next-decade-c234100939a7

(2)Housing Market 2023 for USA:

https://www.youtube.com/watch?v=0AaULWe9hhs

(3) MECE Principal for beginners:

https://www.youtube.com/watch?v=5j5yB7tnbEk