Certified Residential Appraiser Practice Exam

When demand for housing increases, what happens to the supply?

1. The supply decreases rapidly

2. The supply increases quickly

3. The supply increases slowly

4. The supply remains unchanged

The correct answer is: The supply increases slowly

When demand for housing increases, the supply typically increases slowly due to several factors inherent to the housing market. While higher demand may motivate developers and builders to start new construction projects, the process of creating housing involves numerous stages such as obtaining permits, securing financing, and actually constructing the homes. Each of these stages can take significant time, often spanning months or even years before new units are available on the market. Additionally, existing homeowners may not be compelled to sell their homes immediately in response to increased demand, which contributes to a more measured increase in supply. As property values rise because of heightened demand, some homeowners may choose to hold onto their properties longer, anticipating even greater returns in the future. This slow adjustment contrasts with the notion that supply would decrease rapidly or remain unchanged, as those scenarios do not adequately consider the dynamics between demand and construction timelines in the housing market. The idea that supply would increase quickly also overlooks the logistical and regulatory hurdles faced by builders. Therefore, the most accurate understanding is that supply responds to an increase in demand, but typically at a slower rate due to these complex market dynamics.