Analysis of Article "Hot U.S. Housing Market Cooled Some in August"

The article that this report will be based on is ‘Hot U.S. Housing market cooled some in august’ from the Wall Street Journal and this article was written by Nicole Friedman on the 22nd of September 2021. In this article we are given an overview of the American real estate industry and we are shown that there has been a sharp increase in home ownership in the United States as she states that “home sales surged in the second half of last year and first half of 2021 after pandemic-related lockdowns” (Friedman, 2021). The first concept that I can apply to help explain this sudden surge is the idea of supply and demand, due to the nature of the post-pandemic world there was a need for more living space to accommodate for the individuals and families that either had to work from home or learn from home and this resulted in an exponential growth in demand for homes in order to satisfy the needs of the American population. As we know, as demand increases so does the price of a good or product as its supply begins to deplete and in the case of the real estate industry in America this concept was seen as Friedman (2021) stated that the high demand and competition amongst prospective buyers led to a steep hike in prices for houses. 

However, we must also take into account the law of demand which states that as the price of a good or product grows this leads to a reduction in demand of that particular product as individuals can no longer afford the product and when demand begins to dwindle this requires that prices decrease in order to entice customers to begin buying homes again (Ebert et al., 2019). This idea is prevalent in America today as evidence collected by Zillow Group Inc. In the Friedman (2021) article illustrates that “the share of home listings with a price cut rose for the fourth straight month to 12.3% in August”, highlighting the measures being undertaken by realtors and the real estate industry to persuade customers to begin buying homes again. Furthermore, we must also take into account the concept of the threat of substitutions included in Porter’s 5 forces. Friedman (2021)’s continuous references to the competitiveness of the prospective buyers and the real estate industry, highlights to us that there is a variety of alternative real estate agencies and companies that can fulfill the needs of prospective buyers and provide them with the houses that they are searching for. With the stated demand for homes in decline, companies have had to cut prices on homes as these companies realize that customers have the ability to purchase homes from direct competitors offering a similar product which is often of similar quality. These two principles are staples to the concept of the threat of substitutions within Porter’s 5 forces. 

However, after reading the article by Friedman (2021) I realized that if I were to start a business, I would build a real-estate company that places a significant focus on the customer and especially first-time buyers as this industry’s competitiveness has made the process of buying homes or land very tedious and difficult, and my companies core values would be to ease the process of buying a home and increasing the likelihood of purchasing a home. I would incorporate one of the tenets of Porter’s 5 forces, which is the bargaining power of customers (Ebert et al., 2019). The article illustrates that the real estate industry is extremely competitive; therefore, I would build my company in a manner that prioritizes the consumer with an emphasis on first-time buyers as they have various options offering them a similar product so it would be imperative that I ensure that we offer fixed lower prices that are more enticing to the customers as this would allow more first-time buyers to own homes, as we would not be pricing out individuals from purchasing homes. Additionally, this would serve to develop loyalty amongst customers as they are more likely to return to a company that has provided them with better service and options, along with providing first time buyers with homes which is very rarely the case. This is essential as the real estate Industry lacks in loyalty as a home or land is a long-term investment that people rarely change, therefore, developing good relations with customers and developing loyalty will provide my business with an advantage over competitors.  This is due to ensuring that even in a competitive market we will sustain business by having customers who will return to our business as opposed to going to various other real estate companies, as well as encouraging other first-time buyers to prioritize our company as we develop a reputation of providing customers with a higher likelihood of owning homes compared to our competitors. 

References 

Ebert R. J., Griffin R. W., Starke F. A., & Dracopoulos G. (2019). Business Essentials, Ninth Canadian Edition. [VitalSource Bookshelf]. Retrieved from https://bookshelf.vitalsource.com/#/books/9780135257821/ 

Friedman, N. (2021) Hot U.S. Housing Market Cooled Some in August, Wall Street Journal, 22 September. Available at: https://www.wsj.com/articles/hot-u-s-housing-market-cooled-some-in-august-11632319895 (Accessed: 1 October 2021)