Does reduction of properties for sale cause prices to drop?

That seems to be the view in this article: ES Homes&Property

Does that make sense though? Prices for any asset class are predominantly driven by supply and demand. If demand stays the same, a restriction on supply will push prices up. Therefore, it stands to reason that if fewer properties are available for sale, the prices should go up, all other factors remaining equal. Prices are not going up, though… so what does this tell us? It has very little to do with how many properties are for sale.

There must be other factors at play. People are not buying property in London, even though there is a reduction in supply because they must be nervous about something. What is it? It is actually pretty simple: It is the fear that properties prices won’t grow. As we stated in a previous article, if property prices don’t go up, then property is not a good investment even at half the price (unless you take a really long term view). The key with any investment is: the price must be expected to go up.

The fact that people are not buying in certain parts of London tells you that the market view is that prices are expected to stagnate or go down. Even a reduction of properties for sale cannot save this part of the market (usually it would).

It is kind of like an auction. If nobody wants what is being auctioned, there is no bidding the price up and it just sits, unsold. That is happening to parts of London right now.

Buyers are buying though, just in other parts of London and outside of London. 


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