Selling Tips

All In-Depth Understanding Of The Real Estate Market

2 years 9 months ago I 0 minutes read I 27 Views

Gary Stringer
<p class="p1" style="margin: 0px 0px 8px; text-align: justify; font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: 'Times New Roman';"><span style="font-family: verdana, geneva, sans-serif; font-size: 12pt;"><span class="s1" style="font-kerning: none;">Homeownership has always been considered to be part of &ldquo;The American Dream&rdquo; and real estate investing as an asset class has long been a preferred area of investment for many Americans.<span class="Apple-converted-space">&nbsp; </span></span><span class="s2" style="font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; line-height: normal; font-kerning: none;">According to <a href="https://www.gallup.com/home.aspx">Gallup&rsquo;s</a> annual Economy and Finance survey conducted April 1&ndash;14, 2020, thirty-five percent of Americans surveyed say the most favored long-term investment in real estate, which has been the case since 2013. </span><span class="s1" style="font-kerning: none;">The general trend or perception that real estate prices will continually rise is true for the most part but one should always be aware of the risks associated with property ownership. Take for example the 2008 housing crisis where the S&amp;P Case-Shiller National Home Price Index reported that prices dropped a record 18.2% during the last three months of 2008, compared with the same period in 2007.<span class="Apple-converted-space">&nbsp;</span></span></span></p>
<p class="p1" style="margin: 0px 0px 8px; text-align: justify; font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: 'Times New Roman';">&nbsp;</p>
<p class="p1" style="margin: 0px 0px 8px; text-align: justify; font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: 'Times New Roman';"><span style="font-family: verdana, geneva, sans-serif; font-size: 12pt;"><span class="s1" style="font-kerning: none;"><span class="Apple-converted-space"><img src="//s3-us-east-2.amazonaws.com/dealty-prod/uploads/files/000/004/130/original/National_Home_Price_Index_.png?1603117137" alt="" width="1009" height="370" /></span></span></span></p>
<p class="p1" style="margin: 0px 0px 8px; text-align: justify; font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: 'Times New Roman';">&nbsp;</p>
<p class="p2" style="margin: 0px 0px 8px; text-align: justify; font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: 'Times New Roman'; min-height: 12px;">&nbsp;</p>
<p class="p1" style="margin: 0px 0px 8px; text-align: justify; font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: 'Times New Roman';"><span class="s1" style="font-kerning: none; font-family: verdana, geneva, sans-serif; font-size: 12pt;">Even though the eventual fall in prices came as a shock for most people, the financial and economic indicators had shown problems well in advance of the fall. Because of unawareness and unpreparedness to macro and microeconomic indicators impacting the real estate industry, a lot of property owners, real estate agents, middlemen, and other investors were adversely impacted.<span class="Apple-converted-space">&nbsp;</span></span></p>
<p class="p1" style="margin: 0px 0px 8px; text-align: justify; font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: 'Times New Roman';"><span class="s1" style="font-kerning: none; font-family: verdana, geneva, sans-serif; font-size: 12pt;">Thus, as property buyers or sellers, having a <a href="https://yourdealty.com/blog/what-can-you-do-to-sell-a-house-in-a-down-market">deep understanding of the current market</a> conditions will help you not only more accurately determine the price of a property but will also enable you to identify market trends and possibly recognize whether or not it is the right time for you to enter or exit the market. Property prices themselves are the result of many underlying factors that are interlinked and can successively impact the housing market in positive or negative ways. Understanding the behavior of these factors and the relationships that they hold with each other is essential in trying to determine their eventual impact.<span class="Apple-converted-space">&nbsp;</span></span></p>
<p class="p1" style="margin: 0px 0px 8px; text-align: justify; font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: 'Times New Roman';"><span class="s1" style="font-kerning: none; font-family: verdana, geneva, sans-serif; font-size: 12pt;">Here are 4 factors that should always to be taken into consideration:</span></p>
<h2><span style="font-family: verdana, geneva, sans-serif; font-size: 12pt;"><span class="s1" style="font-kerning: none; font-size: 14pt;"><strong>1. Demographics</strong></span></span></h2>
<p class="p1" style="margin: 0px 0px 8px; text-align: justify; font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: 'Times New Roman';"><span class="s1" style="font-kerning: none; font-family: verdana, geneva, sans-serif; font-size: 12pt;">Demographic trends such as age, gender, income, employment ratio, and population growth levels impact real estate prices. Increasing income and population levels result in an increase in demand for housing and thus drive real-estate prices up. Aging baby boomers (people born between 1945-1964) exiting the job market, retiring and many moving into retirement living facilities results in 730,000 homes previously owned by seniors coming into the market since 2007. Identifying and analyzing trends such as prospective family sizes, demand for second homes, wealth levels, gender wage gaps, preference of millennials to live with parents instead of on their own, etc., can provide key insights on what to expect and anticipate the developments within the real estate market will be well before they materialize.</span></p>
<h2><span style="font-family: verdana, geneva, sans-serif; font-size: 12pt;"><span class="s1" style="font-kerning: none; font-size: 14pt;"><strong>2. Interest Rates</strong></span></span></h2>
<p class="p1" style="margin: 0px 0px 8px; text-align: justify; font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: 'Times New Roman';"><span class="s1" style="font-kerning: none; font-family: verdana, geneva, sans-serif; font-size: 12pt;">Mortgage rates are closely tied to current interest rates in the market place which are themselves a result of <a href="https://www.federalreserve.gov/faqs/money_12855.htm">government fiscal and monetary policies</a> in the economy and the state of the economy itself. An increase in interest rates directly correlates with an increase in mortgage rates and thus deters housing demand and vice versa. It is important to note that mortgage rates have an inversely proportional relation to housing demand. An increase in mortgage rates makes buying homes more difficult and thus demand falls and vice versa. Currently, due to the pandemic and receding economy, interest rates are at an all-time low, resulting in mortgage rates following suit. Because of this factor, many real-estate professionals have noticed that the expected decline in real-estate prices failed to materialize and that the industry is doing considerably better than expected.</span></p>
<h2><span style="font-family: verdana, geneva, sans-serif; font-size: 12pt;"><span class="s1" style="font-kerning: none; font-size: 14pt;"><strong>3. Economy</strong></span></span></h2>
<p class="p1" style="margin: 0px 0px 8px; text-align: justify; font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: 'Times New Roman';"><span class="s1" style="font-kerning: none; font-family: verdana, geneva, sans-serif; font-size: 12pt;">The modern-day economy operates in recurrent cycles, primarily between periods of expansion (when the economy expands, GDP levels and growth rates increase and could result in an increase in inflation) and contraction (when the economy recedes, GDP levels and growth rates decline and deflation occurs). A booming economy signifies increasing disposable income and increasing demand for housing and property investment. Such an increase in demand may lead to an increase in property values. This is usually categorized as a hot market. Contrary to this, a receding economy diminishes people&rsquo;s ability to invest in property, leading to declining demand and receding real-estate prices, cooling the market. It is important to highlight that not all properties react to economic changes in a similar manner. Rental properties, for example, become more popular in recessions as people are unable to purchase houses. Similarly, leased properties (i.e. office spaces) on a fixed long-term rate remain unaffected by short-term cyclical economic changes.<span class="Apple-converted-space">&nbsp;</span></span></p>
<h2><span style="font-family: verdana, geneva, sans-serif; font-size: 12pt;"><span class="s1" style="font-kerning: none; font-size: 14pt;"><strong>4. Government Policies</strong></span></span></h2>
<p class="p1" style="margin: 0px 0px 8px; text-align: justify; font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: 'Times New Roman';"><span class="s1" style="font-kerning: none; font-family: verdana, geneva, sans-serif; font-size: 12pt;">Government legislative activities can also have an effect on the economic cycle and the real estate market.<span class="Apple-converted-space">&nbsp; </span>Sustained levels of economic growth result in demand for goods, services, and increased investment, pushing prices further up and resulting in demand-induced inflation. In order to try and control inflation, the government via fiscal and monetary policies will determine interest rate levels and cash flow circulation in the economy, and in doing so may slow down business activity. This will have the effect of reducing disposable income levels, reducing demand, and therefore prices, including real-estate prices. It is important to note that such changes, however, are policy-driven in nature and don&rsquo;t necessarily signify a long-lasting impact. Government taxation and tax relief policies pertaining to property transactions also impact market dynamics.<span class="Apple-converted-space">&nbsp;</span></span></p>
<p class="p1" style="margin: 0px 0px 8px; text-align: justify; font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: 'Times New Roman';"><span class="s1" style="font-kerning: none; font-family: verdana, geneva, sans-serif; font-size: 12pt;">The US Government introduced the first-time homebuyer tax credit in 2009; this was a tax refund that American&rsquo;s who purchased their first home were eligible to receive. <a href="https://www.nar.realtor/">National Realtors Association</a> reported that due to such an encouraging policy, 900,000 American&rsquo;s purchased a home.<span class="Apple-converted-space">&nbsp;</span></span></p>
<p class="p1" style="margin: 0px 0px 8px; text-align: justify; font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: 'Times New Roman';"><span class="s1" style="font-kerning: none; font-family: verdana, geneva, sans-serif; font-size: 12pt;">All these factors help create more understanding of how important it is in evaluating economic conditions in determining the state of the real estate market today and for times to come. It is important to ensure that the perception a <a href="https://yourdealty.com/">property buyer, seller</a> or agent have is based on realistic trends and is not in any way based on hearsay or generic market behavior unsubstantiated by actual macro/micro, industry, or financial indicators to ensure that whatever decision you take is favorable and sustainable for you in the long run. <span class="Apple-converted-space">&nbsp;</span></span></p>
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Gary Stringer

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