Shelter is a basic human need and owning a piece of real estate is a common dream worldwide. According to a survey by the United States Federal Reserve, 65.2% of American families own a primary residence. These figures could vary, depending on whether the country is developed or developing, but the quest for a roof over one’s head is an enduring one. Here, we share the main factors driving the global real estate market.
Demographics is the composition of the population based on factors such as age, race, gender, and income. They affect the pricing of real estate and demand for properties of all types ranging from vanilla apartments to duplex style homes. For example, one area may host an ageing population and another may be attractive to young families. A major shift in demographics can affect the real estate trends for many decades.
Interest rates are a crucial factor in the real estate market. Changes in interest rates greatly influence a person’s ability to purchase a residential property as lower rates reduce the costs to obtain a home mortgage and create a higher demand for real estate, thereby pushing the prices higher. On the other hand, a higher interest rate regime drives up the mortgage rates, resulting in reduced demand and lower prices of real estate. The real estate crash of 2007 demonstrated the global nature of the real estate market.
The state of the economy is a key factor that drives real estate. Economic growth is measured in terms of GDP, manufacturing activity, employment and prices of goods. A sluggish economy leads to weakness in the real estate space, whereas strong economic growth leaves more money in people’s pockets to visit boutique display homes and make a home purchase.
Government policies have a major bearing on property supply and demand, and pricing. A government can temporarily boost the demand for real estate through tax credits, deductions and subsidies in line with its political objectives and ground realities. Governments have to often make difficult choices, like choosing between long-term priorities and quick-fixes, and these could impact the real estate prices.
Employment, or the lack of it, is the central factor that influences a house-buying decision. Most people prefer to live near their workplaces as work is a crucial component of their lives. An increase in employment opportunities would attract many people to a particular area, thereby resulting in a drastic change in the real estate landscape.
Supply acts as a balancing factor in the real estate market. Supply is the total amount of houses available for sale in a particular area. A typical supply benchmark is six months of housing. Anything less than six months can lead to a housing shortage and rising prices, while supply that exceeds six months amounts could prove disastrous for the real estate entrepreneurs.
The real estate market will remain as long as people aspire to have a house of their own for security and protection against natural and human elements.