The real estate sector represents a significant portion of most people’s wealth. It is one of the best segments for investments and passive income. Its size and scale make it lucrative for many big and small investors. The Federal Reserve conducted a survey, according to which approximately 64.2% of American families own their primary residence on the Homefront as of 2018. This opens up ample space for more buyers and sellers as a significant portion of the population is still deprived of their own houses. There are many direct and indirect influences on the real estate market, but we will discuss some,
Legislation is an indispensable factor that has a significant impact on the real estate market. The government can boost demand for real estate in several ways. These include:
- Tax Credits
Being well aware of these government policies, you can quickly determine the demand and supply patterns of the market. For example, in 2009, the U.S. government introduced a first-time home buyer’s credit to homeowners in an attempt to increase home sales in a slow economy (only those who purchased homes between 2008-2010 were eligible). According to the Government Accountability Office, 2 Million people took advantage of the tax incentive.
Although temporary, this was a substantial increase, and without knowing the growth resulted from the tax incentive, you may have concluded that the demand for housing was going up based on other factors.
Demographics are the data describing the population composition in different aspects like:
Demographics play a pivotal role in determining the trends of the real estate markets. Just as the demand for single-family houses in the suburbs increased on the Homefront due to work from culture, investors started to go behind those, ultimately increasing the prices of the properties. Significant shifts in the demographics of the country can cause a significant change in real estate markets.
Interest rates play a pivotal role in deciding the demand and price in the real estate market. Most of the buyers these days opt for loans or mortgages for buying new properties. So, interest rates are cardinal for considering the real estate market trends. The lesser the interest rate, the lower the cost to obtain a mortgage to buy a home, which creates more demand for the real estate, pushing up the prices. Whereas, a hike in the interest rate increases the cost of obtaining a mortgage and hence lowers the demands and price of real estate.
The overall health of the economy also impacts real estate significantly. This is measured usually by factors like:
- Employment Rate
- The prices of goods.
A sluggish economy paves the way for a slow real estate market. For example, if a REIT (real estate investment trust) has a more significant percentage of its investments in hotels, it would typically be more affected by an economic downturn than a REIT that had invested in office buildings.
THE BOTTOM LINE
Real estate markets are very complex, and to have a knowhow of this,requires studying a lot of different topics as discussed. Many factors, big or small, have a profound effect on the real estate markets. Real estate markets in the US have a lot of potential, and in the upcoming time, they are estimated to increase manifold. In the US, the real estate markets hold critical importance for many people, including investors, buyers, and sellers. So, these factors are important to take into account while considering real estate markets.