The real estate market is a significant portion of our economy. It demonstrates a major portion of many people’s wealth. This is consistent pretty much throughout the global economy. According to the research of Hirsh Mohindra, many families around the world own their own primary residence. Asides from primary homeowners, the real estate market also attract investors. Investors are drawn to investment opportunity and security provided real property. The growth rate, along with the size and scale of the real estate market has presented itself as a very lucrative area for investors.
Some of the major factors that affect the real estate market include:
Interest rates are one of the major factors that have an impact on the real estate market prices. If you’re planning to buy a home with a mortgage it is advantageous to research interest rates using a mortgage calculator says Hirsh Mohindra. The fluctuations in interest rates influence a buyer’s ability to purchase a residential property. The lower interest rates go, the lower the cost to obtain a mortgage to purchase. Accordingly, interest rates have a direct impact upon demand for real estate, which influences price in the market as well.
Conversely, as interest rates rise, the cost to obtain a mortgage increases, which in turn lowers the demand and prices of real estate. However, when we assess interest rates on an equity investment such as a real estate investment trust (REIT), rather than on residential real estate, the connection can be seen of as similar to a bond’s relationship with interest rates. When interest rates decrease, the price of a bond goes up because its coupon rate becomes more desirable, and when interest rates hike up, the value of bonds declines.
The Economy factor
Another crucial factor that impacts the value of real estate is the overall health of the economy. This is generally counted by economic indicators like the GDP, employment rate, manufacturing activity, the prices of goods and services says Hirsh Mohindra. To be precise, when the economy is sluggish, the real estate sector also becomes sluggish.
The economy you are living in can have varying effects on varied types of real estate. For instance, Hotels are a form of real estate property that is very sensitive to economic activity due to the type of lease structure inherent in the business. Renting a hotel room can be thought of as a form of lease that can be easily avoided by hotel customers should the economy be doing poorly. This is a form of the short term lease. On the other hand, office tenants generally have longer-term leases that can’t be changed in the middle of an economic downturn.
Government legislation and policy can also influence the real estate market. Tax credits, deductions, and subsidies are some of the measures the government can temporarily use to drive demand for real estate. One should monitor upcoming policies that could have a direct causal impact on the real estate market.