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, plus seller’s marketsHowever, it seems that people continue to overreact to changing conditions, etc. It would therefore be beneficial to better understand some of the reasons and driving forces involved in what causes these cycles to occur. With that in mind, this article will briefly try to consider, examine, review and discuss 5 important factors and some of the possible impacts and ramifications involved.
1. 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 generally see higher 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 your monthly maintenance fees are lowered. However, throughout history these have come and gone and often have had a dramatic impact on the industry as a whole!
two. Overall 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/Work 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 worried 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 larger supply!
Four. Price/Affordability: There is often a point of diminishing returns, when it comes to rising prices! When they increase too quickly (or are perceived as costing 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: The 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 are for future fluctuations! Will you become a smart home buyer?