Which principle explains the fluctuation of property values based on changes in the market?

The principle that best explains the fluctuation of property values based on changes in the market is the Principle of Supply and Demand. This principle recognizes that property values are highly influenced by the relationship between the supply of properties available for sale and the demand from buyers in the market. When demand exceeds supply, property values typically increase, reflecting the competition among buyers. Conversely, when there is an oversupply of properties and less demand, values tend to decline.

The Principle of Supply and Demand serves as a foundational concept in real estate economics, illustrating how external factors like economic conditions, interest rates, and demographic trends can shift the supply-demand balance, thereby impacting property values. Understanding this principle is crucial for professionals involved in property taxation and valuation, as it equips them to assess and predict changes in market behavior effectively.