It’s something that tends to shape every financial market going, 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 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 looks at the four main factors that 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, many emphases 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 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?
It’s questions like these that show just how demographics can have such an impact. For now, it’s the baby-boomers who 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 it’s likely to be reflected in the real estate market if the economy is strong.
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 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.