Key to Understanding the Real Estate Market
Anyone looking into purchasing or selling a home should have an idea of the real estate market. The market can be influenced by several different factors, from supply and demand to median home prices and new construction. By understanding how these particular factors impact the market, investors can make informed decisions about where and when to invest.
This article will discuss the five important factors that contribute to understanding the real estate market, especially for first-time homebuyers.
How Supply and Demand will Create a Buyer’s Market or a Seller’s Market
Supply and demand is a major factor that will affect the real estate market. To put it simply, when there are more properties available for sale than buyers looking to purchase, it is a buyer’s market. In a buyer’s market, the power lies within the buyer as they have more options to choose from, and sellers might need to be more flexible on pricing or willing to make repairs to their property to attract more buyers.
When more buyers are drawn to properties than there are available homes for sale, it is a seller’s market. In a seller’s market, the power lies with the seller as they hold multiple offers while having the ability to command a higher price for their property. In a seller’s market, buyers might need to act quickly by making competitive offers to secure the desirable property. In many situations, this will create bidding wars between buyers while creating offers that are above the list price.
Direction of Housing Market Hinted by Median Home Prices
Median home prices help indicate the direction of the housing market that is analyzed with caution. This is the median home price, not the high and lowest prices. Look at housing prices from the same period years before to predict this trend, even if it might be tempting to look at previous months. The prices will fluctuate seasonally, from December to July, you will see completely different numbers. Median home prices can hint at the housing market’s direction. When median home prices are rising, the housing market suggests a period of stability and growth, indicating an increased demand for housing and a strong local economy.
On the flip side, when median home prices are falling, it can suggest that the housing market is in decline and that the local economy might be struggling. When other factors like an increased rental vacancy rate are present, this can be a big warning sign for investors. It is important to consider the median home prices along with other factors like rental rates, potential for appreciation, and vacancy rates when making any type of investment decisions.
New Construction Will Increase the Market’s Supply
If there is a lot of new construction in a particular area, it can lead to a dramatic increase in the supply of available homes. This can lead to a decrease in prices while creating a buyer’s market. On the other hand, if there is a limited amount of new construction, it can lead to a decrease in the supply of available homes. If you are a real estate investor, it is important to understand the impact of new construction on your local market. If there is a lot of new construction popping up in an area, this can be a clear indication of a developing and growing market.
To look at the impact of new construction in your local market, it is crucial to look at building permits and zoning changes. This can give you a general idea of the amount of new construction that is planned for the area and how it can impact supply and demand. It is always important to consider the type of construction that is taking place. When you begin searching for distressed properties, this can be a factor to look at so you can always see if there is a need for the chosen property type based on an oversaturated supply.
Low Mortgage Rates Increase Demand
Low mortgage rates can have a big impact on the real estate market by increasing demand for homes. When mortgage rates are lower, it will become more affordable for buyers to purchase homes and make monthly mortgage payments. This can lead to a dramatic increase in demand for homes, which can drive up prices and directly create a seller’s market.
On the flip side, when mortgage rates are higher, it can make it more difficult for buyers to afford homes and might decrease demand for homes. This can lead to a decrease in prices while creating a buyer’s market. There are plenty of factors that can have a big impact on mortgage rates, including economic growth, inflation, and the actions of the Federal Reserve. As a real estate investor, it is always important to stay informed about these particular factors and how they might impact mortgage rates in the future.
It is important to note that mortgage rates can vary depending on factors like loan terms, credit scores, and downpayment. As a real estate investor, it is important to consider these particular factors when evaluating potential investments. By keeping themselves informed about mortgage rates and differing market factors, real estate investors can position themselves to make the best-informed decisions while maximizing their returns in the real estate market.
Economy
The economy is going to have a big impact on the real estate market, as economic trends like interest rates, tax incentives, wage growth, and job opportunities can all have a big impact on supply and demand, new construction, median home prices, and mortgage rates. Interest rates are a factor that can have a big impact on the housing market. For example, when interest rates are low, it will become more affordable for prospective buyers to purchase homes and maintain monthly mortgage payments, as there will be an increased demand for homes, which can drive prices sky-high and create a seller’s market.
On the flip side, when interest rates are high, it can make it all the more difficult for buyers to afford homes and might decrease demand for homes. This can lead to a decrease in prices while creating a buyer-friendly market. Declining wages or a lack of job opportunities can impact the demand for housing, as individuals might not have the financial means to purchase or rent homes.
Real estate investors should always stay informed about economic trends and their impact on the real estate market, as this can involve following economic news, as well as monitoring interest rates and tax policies.
The Bottom Line
Understanding the state of the housing market is crucial for real estate investors. Unlike individual sellers or homebuyers, investors are looking for all opportunities to generate returns on their investments. Any changes in the market will have a big impact on these opportunities. By having a general understanding of the supply and demand dynamics, median home prices, new construction, mortgage rates, and the economy, investors can identify opportunities while making informed decisions about future investments. Keep yourself informed about market trends and have a clear investment strategy, real estate investors can make smart investment decisions and maximize their returns in the real estate market. Trust your local real estate professionals at Burling Square Group to guide you in finding and settling down in the home of your dreams in the many beautiful, suburban neighborhoods that make up Glenview, IL, today.