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8 Factors That Affect the Local Real Estate Market
Real estate markets aren’t totally dictated by the stock market. It’s a totally different investment atmosphere and there are a lot of reasons for the rise and fall of housing prices. Sometimes government actions make changes in pricing. Other times it’s the buyers and sellers.
You also have private companies like lenders causing property values to go up and down. Most of the time it’s mixed. But what exactly are these causes and how they affect home values? Let’s find out.
1. Demographics
This describes the identifiable characteristics of the population in a given neighborhood. For example, baby boomers are now transitioning from living in their own residences to living in care homes. This affects the local housing market because if there are a lot of elderly in the area, a lot of homes go up for sale in the next few years. And that affects the supply market.
2. Supply and Demand
Speaking of supply and demand, when there are a lot of homes available for sale in the neighborhood and nobody or only a few are buying, housing prices could go down. But if there is a scarcity of homes and the demand is high, housing prices could go up.
3. Economic Growth
Economic growth means the influx of wealth into an area or the rising standard of living among the residents. If the people living in the neighborhood are getting richer, that means the surrounding homes increase their value.
4. Government Policies
Tax credits, deductions, and government subsidies are other ways that can affect local housing market prices because they can boost demand and reduce housing supply. This is very important to learn in real estate investment because it helps you identify and avoid going with the false market trends.
5. Interest Rates
If mortgage interest rates are low in an area, the neighboring house prices could increase. The same goes for its availability. This is because when interest rates are low and mortgages are highly available, a lot of buyers are encouraged to make an investment.
Then, the competition among buyers rises making the demand for homes increase as well. Like the law of supply and demand, if there is high demand with low supply, prices go up.
6. Neighborhood Comparatives
Neighborhood comparatives mean that the price of the homes will mostly depend on how much the latest homes were sold for. And the similarity of housing prices increases when the homes are similar in design and land size.
So if 3 homes in the suburb were recently sold for half a million, then the next home for sale might be half a million as well.
7. Location Desirability
Crime rates, quality of education, sanitation, closeness to work, and basic necessities determine the market value of a neighborhood. If an area is near a market, grocery, and school with low to nonexistent crime rates, then there is high desirability for the homes in it.
A lot of young middle-class families will then move in and compete for housing supply increasing the prices for homes. If the neighborhood has a lot of crimes, very dirty, and prone to natural disasters, then nobody will move in, people will move out, and the value of homes will be reduced.
8. Consumer Confidence
Sometimes buyers won’t buy homes in an area for no apparent reason. Maybe because of some false market trends indicating that the future value of the property will fall. Understanding consumer confidence is also important because if buyers won’t take a risk, there will be less demand and competition for homes in a neighborhood.
If you’re buying a home, review these factors and how they affect the local housing market so that you’ll avoid buying an overpriced house. If you're selling, use this blog as a reference to set an appropriate price and avoid selling due to false market trends.
Real estate knowledge is the best capital for property investment. Learn more of it by reading the blogs below!