Just like most asset classes, real estate is also a tangible asset, and its value is governed by the market forces of demand and supply. Since every housing transaction takes place between a buyer and a seller, both laws work against each other until the equilibrium price point is attained.
Let’s talk about some other factors that determine the housing market prices:
When a jurisdiction does well in terms of economic growth, the average per capita income also rises. This allows individuals to spend more on housing. This also increases the housing demand and pushes the prices upward. In fact, housing demand is considered largely elastic. This means that rising incomes will always lead to a greater percentage of income spent on housing.
On the other hand, when there’s a recession, individuals either lose their jobs or fall behind on their mortgages. This way, they get their homes repossessed or foreclosed. These further pushes housing demand and prices downward. The same happens when unemployment is on the rise and very few individuals can afford to buy houses.
Consumer confidence also has a role to play. When individuals feel like the housing prices are about to fall, they defer buying.
Interest rates are a common determinant because they affect your monthly mortgage payments. When the interest rates are high, the cost of borrowing also increases. This makes it difficult for individuals to acquire mortgages. As a result, the macro-level demand for housing will decrease. During high-interest times, individuals consider renting homes rather than buying them.
The period from 1996 to 2006 was considered a housing boom. During this time, banks and other financial institutions were particularly keen on lending mortgages. In fact, they allowed individuals to borrow nearly five times income multiples against very low initial deposits and easy installments.
The ease of qualifying for a mortgage eventually pushed up the housing demand. However, after the credit crunch of 2007, banks got a little more stringent with their mortgage policy and tightened the criteria. This reduced the availability of mortgages, and consequentially the housing demand.
Phillip Fehler from Fathom Realty is a seasoned real estate broker that has been helping the residents of Fort Bragg and Fayetteville in North Carolina for the past many years. Let’s help you find your dream home. You can call us at (910) 381-1341 or email Philip Fehler at email@example.com.