In real estate industry, it’s a common saying that overall market and cost are affected by broader economy whereas size, location and condition are only a fragment of the bigger picture. When a state’s economy is healthy, certain areas of residential properties grow stronger in terms of stability as well as profit.
Employment, real estate supply, demand and country’s fiscal factors are beyond owner or seller’s grasp. In order to move and survive in the market, you must beaware of all these trends which are crucial to periodically track property value as well. Before commencing, I’d like to mention this Dubai property rental firm for sharing wonderful piece of advice on the topic. Let’s have a look at different factors having a noticeable impact on residential real estate.
1. The housing starts
There’re two major segments of housing market namely housing starts and home sales. With this, housing starts refers to tracking the total number of new construction projects to begin in a particular month.
In a strong and stable economy, the tendency to buy new homes increase as compared to the weaker, unstable and dwindling fiscal climate. Housing starts typically represents healthier economies affecting related markets namely land sales, mortgages, employment and raw materials.
2. Home sales
Home sales are directly proportional to the economy so they rise and fall according to the fiscal shifts. In a slow economy, revenue or profit supply become more restricted as it’s harder to borrow even from financial institutions, only a few daring investors enter the residential properties.
With limited loan facilities, number of buyers decline thus inventories go up and take sufficient time to sell. In this situation, greater supply of a particular product when coupled with lower demand forces the price to drop.
3. Money supply
Healthy inflow of money is critical to overall fiscal health especially for residential properties. In case it’s difficult to borrow, both housing starts and home sales would eventually desiccate. On the contrary, if it’s too easy to borrow, there’d be excess supply of buyers thrusting the price up till market correction, recession or eventual crash occurs. In an ideal market, supply and demand must be aligned with economy but that’s not always the case.
4. Vicious phases
Once economy slows, it pessimistically affects housing markets. The cycle goes like this; slow economy influence real estate which as a result affects overall economy as property market related activities also decline. This so called “vicious phases/cycle” breaks once improvement begins and consumers are finally able to meet the demand.
While the correlation between home prices and mortgage rates isn’t too strong, various other factors help preventing interest rates from pushing down the cost of residential properties.
For instance, mortgage rates only rise with a boost in economy which results in inflation as well as raising the wages.
Housing demand increases as affordability factor rises which push the cost upwards. Although lower mortgage rates make financing more convenient, lower rates not necessarily increases demand.
6. Housing inventory
Limited number of homes for sale in a particular locality means seller can demand a higher price. This accelerates the housing cost leading to excess supply as compared to demand and eventually, price starts to drop. When market is flooded with large inventory of homes, buyers have more choice and they can sit in the market for longer. In this particular scenario, typical seller may also go with lower offer.
Radical shift in a population’s demographics influences the type of real estate units in demand. For instance, rise of Millennials and downsizing of baby boomers to smaller homes increases demand for these units. Inventory for larger homes in market also rise as a result which drops their cost. Yet another trend is of employed individuals preferring homes in close proximity to their offices, right in the bustling metropolis.