There are a number of factors which control the productivity of a real estate market. These factors make the market to be very volatile hence, it may not be a good venture for everyone. To profit from this industry, you must have superlative analytical skills. The most important factors to consider when evaluating chances of getting better returns from the market include:
Every downturn in the real estate market gets blamed on the economy. Factors such as politics or production play a significant role in the state of the economy. This also affects the housing market. The demand for property is dependent upon an individual’s income. In case of an economic growth, there will be an increase in the amount of income and as a result, people will be willing to spend a larger portion of their money on housing facilities. Generally, the demand for property can be assumed to be income elastic.
During a recession, people will not afford to purchase houses. Others may lose jobs thereby making it impossible to make mortgage payments. They may end up losing their houses i.e. houses can be repossessed. Therefore, the state of the economy will have a direct impact on this market.
These are data describing the general composition of the population in terms of gender, age, population growth, income and race. It is one factor which enables realtors to anticipate trends in this market. Possessing better anticipation skills can protect you from these dynamisms and hence increasing the probability of profiting from the market. Shifts in the demographics affect the housing market immensely. It is only through these statics that you can determine the types of property in demand and their market value.
The housing market is also affected by the interest rates. Higher interest rates increase the cost of mortgage repayments and as a result, only very a few individuals will be willing to buy homes. In fact, most people prefer renting to buying. Take for instance the drastic increase in interest rates in the United Kingdom between 1990 and 1992. There was a steep fall in the cost of houses. This was also evident in 2007 when there was another serious crisis in the real estate market. This is actually an indication that; global economy, banks and governments can influence the housing market by manipulating interest rates.
Apart from these, interest rates also affect the equity investment. For instance, when there is an increase in interest rates in the housing market, the yield on real estate investment (REIT) becomes less attractive. This reduces their value. On the other hand, in situations where there is a decline in interest rates, the high yield on real estate investment (REIT) becomes more attractive. This makes their value to increase. It’s important that all realtors keep an eye on all factors within the local and the global market which can affect the interest rates.
In situations where banks are willing to lend mortgages; very many people will be able to borrow large amount of money and hence, they will be able to purchase houses. This increase the demand. For instance, between 1996 and 2006; banks and building societies did not have very stringent lending criteria and hence, quite a number of people could access mortgages. However, after 2007 when there was a serious credit crunch, both building societies and banks tightened the lending criteria. This move denied quite a number of people access to mortgages thus reducing the demand for property.
Generally, these are some of the most important elements which affect the housing industry. If you plan to venture into this market, you must be able to analyze all these elements as they will help you to determine the market value of a property.