You’ve probably heard the adage that real estate prices vary depending on where you live. What happens in one part of the country has no bearing on what happens in another part of the country, and so on. While this principle holds in general, there are a few exceptions to the rule. In reality, no matter where you live, some universal elements drive the real estate market. What exactly are these variables? In this post, we’ll look at the 5 vital factors that drive the real estate market and why they affect home prices throughout the country.
5 vital factors that drive the real estate market
1. Supply and demand
Real estate prices depend on the law of supply and demand. While this factor can be local, it can be national too. When the demand for property is high but property is scarce, prices skyrocket and it becomes a seller’s market. When the number of available properties increases to glut the market, prices typically drop.
2. Interest rates
As a whole, interest rates drive the real estate market. When interest rates are low, people tend to be more likely to buy a house. This is because they can borrow money more cheaply. However, as interest rates rise, there is not an immediate slowing to the real estate market. This is because interest rates tend to move slowly, so buyers have time to lock in rates. With that said, in times of very high interest rates, you will see a slow-down in the real estate market. This is because buyers simply cannot afford to borrow money at such a high rate.
3. The economy
There is a correlation between the strength of an economy and how well the real estate market performs. The overall health of the economy is another important aspect that influences the value of real estate. As such, the economic condition of the country is of utmost importance. If the economy is stable, it will attract investors. As a result, the real estate market will flourish by leaps and bounds. People do not want to invest their money in failing economies, no matter how well you price your real estate ventures.
4. The stock market
Since most of the people’s wealth is tied to the stock market, this too is one of the factors that drive real estate. If the market crashes, then people won’t have the money to pay for a down payment. People become fearful of losing more of their money and they would rather save it than spend it. But as with the economy, as the stock market picks up steam, people gain confidence and begin to look into buying houses again.
5. The government
Finally, the government is another important driver of real estate. The government can create subsidies or even change policies to spur or slow down the real estate market. Moreover, the government can also offer loan programs to help people to buy homes with greater ease. All of these factor into the price of real estate.
