What happens to prices when there are fewer properties on the market resulting in greater scarcity?

When there are fewer properties on the market, this situation creates a condition known as scarcity. In economics, scarcity refers to the limited availability of a resource—in this case, real estate. When supply diminishes and demand remains constant or increases, competition among potential buyers intensifies. This heightened competition can lead to bids that exceed the previous market price, ultimately resulting in an increase in property prices.

The relationship between scarcity and price is a fundamental concept in real estate markets. Buyers are often willing to pay more for properties when they perceive them as limited or in short supply, which is a clear driver for prices to rise. Thus, during periods of scarcity, prices tend to be pushed upward as buyers attempt to secure the available properties before they potentially become unavailable.

This principle is supported by market dynamics, reflecting how supply and demand interact to influence prices in the real estate sector. Understanding this concept is crucial for anyone involved in the appraisal and valuation of properties, as it directly influences property value assessments.