If we learn from the past, in a meaningful way, we would better understand, the history of real estate, should teach us, the housing markets, are, often, cyclical! There are up – markets, and down, ones, as well as periods, with a greater degree of balance, between these two. Most have heard references to buyers markets, as well as sellers markets, yet, it seems, people continue to over – react, 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, occur. With that in mind, this article will attempt to, briefly, consider, examine, review, and discuss, 5 important factors, and some of the potential impacts and ramifications, involved.
1. Interest rates: One of the driving forces, in the housing markets, is interest rates. These may be, market – driven, based on economic conditions, manipulated (for political purposes, etc), or, specific, to mortgage rates. After all, when one pays lower rates, for a mortgage, we generally witness, greater buyer demand, because, it’s possible, to get, more bang – for – the – buck! Lower rates mean, one gains the ability to buy more house, for his dollars, because the costs of his monthly carrying charges, is reduced. However, throughout history, these have lowered, and raised, and, often, dramatically impact the overall industry!
2. Overall economy: A good economy brings about a greater degree of confidence, because people, seem to believe, it’s a good time to buy! On the other hand, when there is economic concern, it affects the real estate industry, in a negative manner!
3. Consumer/ job confidence: The better the overall, job security, and consumer confidence, the better the housing market, responds. On the other hand, many people are cautious and concerned, during, either, actual, or perceived, down – turns, or, even, potential ones, and take a break, from looking for a house. The laws of supply, and demand, will either raise or lower prices, when either, sellers, or buyers, are in larger supply!
4. Pricing/ affordability: There’s often a point of diminishing return, when it comes to rising prices! When these rise too quickly (or perceived as, houses costing too much), many people perceive them, as unaffordable, and stay away, from the housing market. Obviously, that will bring about a price correction!
5. Real estate taxes: Areas with higher real estate taxes, often, have the greatest market swings, because, especially, since the tax legislation, enacted in 2017, which capped deductions, to $10,000, these houses, become more challenging to market, and sell!
The more you understand, and learn from the past, the better you will be prepared for future fluctuations! Will you become a smart home buyer?