Compared to other types of assets that people have, such as cars and gadgets, real estate is known for taking up a good chunk of people’s overall wealth. This is especially true for most homeowners in first-world countries like Australia, the United States, Canada, and the United Kingdom. It goes without saying that buying real estate will require many funds or a steady income that proves that you can afford a mortgage loan to buy one.
According to several surveys, a good chunk of families in the United States have owned their primary living space as of 2019. The recent growth and demand in the real estate market have made it a worthwhile investment for many investors. Since it’s a lucrative business model that many can profit from, we must consider different factors that can affect the industry and the current state.
So what are some key factors that we’ll need to keep in mind? What are some important investments in this situation? Here’s what you’ll need to know.
The Community and the Demographic
First and most importantly, the community and the demographic will play an important role in real estate prices and the local market. This can come in many forms, such as the population growth in the area, the dominant age group, income group, gender, and even the race of the inhabitants.
For instance, a recent study has shown that previous generations of older adults born right after World War II have a significant effect on the real estate industry. Many of these individuals will need places to retire, which caused a spike in demand back in 2010. Thus, the community and the demographic will play an important role in pricing.
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The Current State of the Economy
One of the most major factors that can affect the real estate market and the values is the current state and “health” of the economy. Much of the real estate market will usually use different economic indicators to know how the current flow of the economy is going.
Some indicators being used include:
- Gross domestic product
- Employment data
- Price of foods
- Employment and unemployment rates
- The rate of goods being manufactured
The real estate industry is known for dealing with properties and will heavily rely on the buying power of everyday individuals. That said, if the economy is being slow, so is the real estate market.
However, it’s important to note that the economy’s ebb and flow can have various effects on the market. Some of these effects might seem fairly complex to understand. For instance, if investors will place a good amount of their investments towards hotels and resorts, they would be affected by certain global events than real estate investors investing in office buildings. The current COVID-19 pandemic has caused many social changes, especially in travelling, which has caused an economic downturn in the tourism industry, thereby hurting the hospitality industry.
That said, the economy will also be affected by different factors, which can also affect the real estate market. In most cases, the process is known for being cyclical, which means that real estate agents will need to be informed on the current state of the national and international economy.
Lastly, almost any type of market is affected by decisions made by a nation’s governing body. In this case, laws and government legislation can significantly impact the demand for properties and prices.
Some laws that can affect the real estate industry come from tax credits, subsidies, and deductions to taxes. Although, some of these laws are known for helping the demand of the real estate industry. Still, you’ll need to be aware of government programs in place, which can also affect the supply chain. Although these programs are still important to the market, these can also become false trends. In 2009, the United States government introduced a first-time homebuyer’s tax, which resulted in hundreds of thousands of homes being bought.
You’ll need to consider many things regarding the pricing of properties and how the real estate market works. Although these are just some major factors that can affect the ebb and flow of the market, it’s important to keep in mind that more aspects can affect the industry, such as current global events. That said, many first-time buyers, investors, and sellers will need to be alert on current events in the real estate market.