Supply and demand are the basic driving forces behind the value/price of an item. High demand, as well as constrained supply, will put upward pressure on prices. On the other hand, low demand and oversupply will lead to lower prices. It’s usually a change in one or the other that explains the change in the price of an item.

For example, when a critical oil pipeline gets hacked and supply is halted, we can expect higher gas prices. When a Christmas toy suddenly becomes a must-have toy, you can expect the item’s price to skyrocket in the after sale market.

If you’ve been paying attention this past year and a half, the price of many items has increased. Fuel, food, home goods, cars, electronics, clothing, sporting goods are just some of the things that have seen big price jumps in the past year. Products and services in over 45 categories had price increases of more than 5% in the past year.

Interestingly enough, the surge in the prices of goods in the past year is due to both supply and demand.

The shortage of parts and components in manufacturing has resulted in the shortage of products on the shelves and showrooms. On the demand side, the trillions of stimulus money injected into the economy have spurred a spending spree by consumers largely unfazed by higher prices – for now.

Used items that typically see depreciating values are seeing unusual price bumps. With new items in short supply, consumers are turning to the used market to satisfy demand.

Trucks as a whole and some models of cars are the most glaring examples – with many owners selling their used cars or trucks for more than they bought them even after owning them for two or three years.

The same has been true with the boating industry, where manufacturers of boats and marine motors can not reliably predict delivery. Just like cars and trucks, the result is the value of used boats skyrocketing – even allowing boat owners to make money when they sell, which is very rare.

So what has this taught us?

Demand drives price and value.

Suppose you want to invest in something that will keep pace with inflation and invest in demand. Right now, the seniors housing segment is experiencing a similar surge in demand – particularly in the small facilities space.

The demand for smaller facilities is partly due to an accelerating aging population who value intimate settings and, in part, to COVID, where large crowded facilities are breeding grounds for the spread of the virus are being avoided.

Demand drives value, but it also drives competition.

The time to act is in the early stages of surging demand because demand also drives competition. Everyone will want to get in on the action.

Increased competition will drive up the cost of existing facilities or the costs of developing new ones. This will mean higher acquisition costs, which will cut into net operating income and profits.

The time is now to lock in acquisition costs. Don’t sit on the sidelines. Strike while acquisition and development costs are still manageable. Invest in senior housing now.