How does supply and demand generally affect property values?

When examining the relationship between supply and demand and property values, the principle that demand exceeding supply leads to an increase in property values is foundational. In a market where there is a strong demand for housing and limited availability, buyers compete for the limited properties, often resulting in higher prices. This escalation in property values is a direct response to buyers' willingness to pay more due to the scarcity of options.

Conversely, if supply outpaces demand, property values tend to decline as sellers may have to lower prices to attract buyers. This dynamic illustrates the importance of understanding local market conditions, as changes in supply and demand can significantly influence property values over time. Additionally, external economic factors may play a role, but they typically act within the framework of supply and demand. Thus, the assertion that property values increase when demand exceeds supply accurately reflects this fundamental economic principle in real estate.