Forces Behind The Real Estate Market

In the world today, most people’s wealth is to be found in real estate. This is true to America, where majority of Americans have their wealth tied to the real estate. Real estate is a promising investment. Many investors are lured to the real estate because it is a lucrative, and promises of good returns in investment. But what exactly drives the real estate market? Four main factors can be singled out: economy; government regulations; interest rates; and demography.

Role of government in real estate

Forces Behind The Real Estate Market

Government plays a considerable role in the real estate market. Policies and regulation passed by the law makers will either depress the property market or make it vibrate. Measures like tax credits, deductions, and subsidies augers well for the real estate.

An example is the first-time home buyer tax credit introduced by the united state of America government in 2009. This incentive was to encourage home sales in a sluggish economy.  The outcome of this move was an increase of 900.000 home buyers; this is according to National Association of Realtors (NAR).

Real estate and economy

How well the economy also affects the value of real estate.  The wellness of economy is measured by factors like gross domestic product, employment data, manufacturing activity, the prices of goods and services.

The effects of the economy, nevertheless, are depended upon the type of the real estate and economic cycle. For example, when there is an economic downturn, real estate investors in hotels will loss more, as compared to those in office building. This is because, hotels can be considered as a short term lease, which can be avoided by customers when times are bad. The office buildings, on the other hand, are long term leases that can’t be changed in middle of an economic downturn.

What of interest rates?

What of interest rates?

Your chance to own a home, in addition, can be determined by the interest rates, charged by financial institutions.  As the interest rates fall, the cost of mortgage decreases, consequently, creating a high demand for property, this pushes the prices up. Equally, as the interest rates rise, the cost for mortgage surges, as the demand for property and prices for real estate falls.

Population composition factor

The composition of the population has a bearing in real estate, too. The age, race, gender, income, migration patterns and population, determine how real estate is priced and what types of properties are in demand. A demographic shift can affect real estate in a number of ways. For instance the demand for second homes in popular vacation areas might be altered by an increase in number of retirees.  Or demand for larger homes in case the incomes of the owners become smaller and the children have moved out.

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