The real estate market is the hottest topic in the world right now, and it’s easy to understand why.
Homeowners want to know what their home is worth, buyers are trying to get a good deal on a new house, and investors are looking for properties that will yield them high returns.
The factors affecting real estate prices can be complicated, but some general rules of thumb can help you understand how pricing works in any market.
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Interest rates
Interest rates are one of the most critical factors affecting real estate. When interest rates are high, getting approved for a mortgage loan is more challenging because lenders will not want to lend money at such a high rate. Interest rates should be part of your decision-making process if you purchase a home and need financing.
Supply and demand
Put simply, the price of a property will rise if there is high demand and limited supply, and it will fall if there is an oversupply and low demand.
Thus, understanding supply and demand dynamics is critical for anyone looking to enter the fastest growing real estate markets, whether as a buyer, seller, or investor.
Supply refers to the number of goods on the market at any given time; in our case, it’s how many houses are available for sale. Demand refers to how many people want those goods; in this case, it would be how many potential buyers are looking for homes at any given time.
When supply exceeds demand, we have an oversupply–or “oversupplied” market–and prices tend to fall as sellers compete for buyers’ attention and business through lower prices or better terms and conditions (such as free closing costs).
An undersupplied market occurs when there aren’t enough homes relative to demand: home purchasers must bid up prices until equilibrium is restored between seller expectations and buyer affordability considerations.
Inventory of homes for sale
The inventory of homes for sale is a crucial indicator of the market’s health. A high inventory means there are more choices for buyers and vice versa; it also means that sellers have to compete with each other for potential buyers’ attention.
Low inventory can cause prices to rise because there aren’t enough houses on the market, meaning demand exceeds supply and drives up prices.
Mortgage rates
Mortgage rates are at a historic low and have been for some time. If you can qualify for a loan, buying is never better. However, interest rates will rise in the future–and when they do, your monthly payment could increase by hundreds of dollars per month.
Home sales history
Home sales history is essential in determining a market’s health. It can be used to determine how long it takes for homes to sell, how many homes are sold, and how much they sell for.
The number of days on the market (DOM) is when a listing goes live and closes escrow. Suppose you’re selling your home or using an agent who is not working with another client simultaneously.
In that case, this is important because if it takes too long for your house to sell, there’s no point in having an agent represent you and pay them commission fees until after closing escrow occurs.
There you go!
The real estate market is complex, and many factors affect it. The five we listed here are among the most important ones. If you’re buying or selling a home, understanding these factors will help you decide better when to act and how much money to spend on your next purchase or sale.
