How Does the Real Estate Market Work?

How Does the Real Estate Market Work?When you’re involved in real estate as a seller or a buyer, you don’t have to be a real estate market genius, but it will certainly serve you well to learn some foundational principles.

Economists tend to look at the real estate market as an indicator of whether the economy is in a thriving or lacking state. They’ll tell you that when people are genuinely enjoying some economic freedom, they feel free to purchase homes. This is a great indicator that the economy is in a stable state, with some growth occurring. The more houses they buy, the more demand, and the more steadily home values will increase.

What factors affect the housing market?

If you’re interested in the real estate market, it’s a good idea to learn about what factors play a role in the market. What should you look for? What should you research? Now, keep in mind that though one factor might play a role in one area of the market, it may not play a role in another. Real estate market conditions will certainly vary depending on geographical factors.

Stability of the economy

Smart real estate investors will take some time to learn about the economy. One reason they do this is because the stability of the economy is an indicator of what the real estate market will do. When the economy is lagging, or in the case of a recession, the number of foreclosures will go up, people won’t be buying as many houses, it’ll take longer for houses to sell, and as a result, home values will decrease.

On the flip side, when the economy is doing well and is strong, people buy more properties, the demand increases, and the home values increase. Learning how to read the market based upon the state of the economy can help you know when to purchase real estate or wait it out.

Interest rates

Interest rates will increase and decrease in the real estate market, largely depending on what’s going on in the economy. As interest rates rise, less people are apt to purchase homes. As interest rates fall, buyers and investors are more likely to purchase them.

Always check the interest rates before going into a deal. If you’re working with the lender, and they quote you a low interest rate, ask him to lock in that rate, so if by chance that rate goes up during the loan underwriting process, your rate won’t be affected.

The world of demographics

Real estate prices in one area of the country can be significantly different than prices in another area. For example, real estate in New York City is going to be very expensive compared to a rural town in Iowa. Determining property value based on demographics such as age, income, schools, and so on will be important in choosing good real estate deals.

Housing market trends

As you learn more about the real estate market, you’ll become more aware of housing market trends. You’ll follow the interest rates, and know what it means when they increase or decrease. You’ll check the foreclosure rates, and be on the lookout for an increase. You’ll learn about your local market, putting more weight on market trends locally than nationwide.  And, you’ll learn as you go.

The housing market fluctuates, and it’s tough to always know what it’s going to do in the future. However, the more you invest in learning about the economy and the market, the better you’ll be able to make informed decisions whether you’re selling or buying a home.

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