It tends to shape every financial market, and while most of us are at least in some way related to real estate, only a few of us know how it ticks.
In other words, we’re all told about how the market is either dropping or improving, but ask how it’s managing to do this, and many blank faces are returned.
With almost two-thirds of American families owning their own homes, it’s surprising that only some know how their house value is affected. To provide a lowdown on the subject, we have compiled the following guide, which looks at the four main factors influencing real estate prices.
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The surprising factor: demographics
Turn to any of the big markets like Seattle and find a seasoned agent like Clay Hutson. If you were to ask him who shapes the market, the answer would be simple: the baby boomers between the mid-40s and 60s.
Sure, many emphases might be placed on the young adults looking to get their foot on the property ladder, but this group of people tends to shake up the market. As they get to retirement, their decisions about real estate can affect everyone. Will they purchase a vacation property for retirement? How will the demand for larger homes be now that their children have grown up?
Questions like these show how demographics can have such an impact. For now, the baby boomers tend to be the shapers, but in years to come, it might be a different group in the market.
The obvious factor is the economy
Surprise, surprise – the economy also matters. We won’t speak too much about this; it’s likely to be reflected in the real estate market if the economy is strong.
The equation is simple: the market will improve if people have more money.
The second financial factor is interest rates.
We could have coupled this with the previous one. Interest rates can be linked directly to the economy, and it suffices to say that if they are lower, it makes the cost of a mortgage much more affordable. In turn, this creates demand, and the rest, as they say, is history.
Unfortunately, they’re not always low – they can be raised for other reasons. This has the opposite effect on the market, and the once-affordable mortgage is suddenly blown out of the water.
The unknown factor: government policies
There’s always one unknown factor in a market, and on this occasion, it’s related to government policies.
From time to time, the government will attempt to boost the housing market, for an example, the 2009 first-time homebuyer tax credit, which aimed to kick things off during the crisis. To put this legislation’s effect into perspective, it resulted in almost 1 million people purchasing homes.
Therefore, even in times of economic hardship, government intervention can make a huge difference in the market.
