If we learn from the past, in a meaningful way, we will better understand, the history of real estate should teach us, housing markets are often cyclical! There are bull and bear markets, as well as periods, with a greater degree of balance, between these two. Most have heard references to buyers markets, more sellers marketsYet apparently people keep overreacting to changing conditions etc. It would therefore be beneficial to better understand some of the reasons and driving forces involved in what makes these cycles happen. With that in mind, this article will attempt to briefly consider, examine, review and discuss 5 important factors and some of the possible impacts and ramifications involved.
one. Interest rates: One of the driving forces, in real estate markets, is interest rates. These can be market driven, based on economic conditions, manipulated (for political purposes, etc.), or specifically mortgage rates. After all, when you pay lower rates for a mortgage, you often see more demand from buyers because you can get more bang for your buck. Lower rates mean you gain the ability to buy more home, for your dollars, because the costs of your monthly maintenance charges are reduced. However, throughout history these have gone up and down and have often had a dramatic impact on the industry as a whole!
2. General economy: A good economy generates a higher degree of confidence, because people seem to believe that it is a good time to buy. On the other hand, when there is economic concern, it affects the real estate industry in a negative way!
3. Consumer/Labor Confidence: The better overall job security and consumer confidence, the better the housing market will respond. On the other hand, many people are cautious and worry during recessions, whether real or perceived, or even potential, and take a break from house hunting. The laws of supply and demand will raise or lower prices when sellers or buyers have a higher offer!
Four. Price/affordability: There is often a point of diminishing returns, when it comes to rising prices! When they rise too fast (or are perceived as houses that cost too much), many people perceive them as unaffordable and stay away from the real estate market. Obviously, that will cause a price correction!
5. Real estate taxes: Areas with the highest property taxes often have the biggest market swings because especially since tax legislation enacted in 2017 that capped deductions at $10,000, these homes become harder to market and sell!
The more you understand and learn from the past, the better prepared you will be for future fluctuations! Will you become a smart home buyer?