It’s something which tends to shape every financial market going and while most of us are at least some way related to real estate, only 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 a lot of blank faces are returned.

With almost two-thirds of American families owning their own homes, it’s quite surprising to see that only some know how their house value is affected. To provide something of a lowdown on the subject, we have compiled the following guide which takes a look at the four main factors which can influence 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, a lot of emphasis might be placed on the young adults looking to get their foot on the property ladder, but it’s this group of people who tend to really shake up the market. As they get to retirement their decisions in relation to 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?

It’s questions like these which show just how demographics can have such an impact. For now, it’s the baby-boomers which tend to be the shapers, but in years to come it might be a different group in the market.

The obvious factor: economy

Surprise, surprise – the economy also matters. We won’t speak too much about this, it goes without saying that if the economy is strong it’s likely to be reflected in the real estate market.

The equation is simple; if people have more money, the market is going to improve.

The second financial factor: interest rates

Really, we could have coupled this with the previous one. Interest rates can be linked directly to the economy and suffice to say, 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 umpteen other reasons. This then has the opposite effect on the market and that 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, with examples being the 2009 first-time homebuyer tax credit which aimed to kick things off during the crisis. To put the effect of this legislation into perspective, it resulted in almost 1 million people purchasing homes.

Therefore, even in times of economic hardship, a government intervention can make a huge difference on the market.