The housing market is influenced by the state of the economy, interest rates, real incomes and changes in population size. In addition to these demand-side factors, house prices will be determined by available supply. With periods of rising demand and limited supply, we will see a rise in house prices, an increase in rents and a greater risk of becoming homeless. Another key factor affecting the value of real estate is the overall health of the economy.
This is generally measured by economic indicators such as GDP, employment data, manufacturing activity, the prices of goods, etc. Generally speaking, when the economy is slow, so is real estate. In more general terms, government decisions can have a direct impact on the housing market. These include policies on negative leverage, capital gains tax, land tax, stamp duty, first-time homebuyer grants, zoning and construction regulations, infrastructure projects (such as road and rail construction), and more.
It is an axiom in the real estate sector that real estate markets are affected by the economy in general. When economic times are good, certain parts of the housing market tend to experience healthy growth. When economic times aren't so good, those same parts don't usually work very well. The economy affects the housing market in general and affects two of its main segments in a particularly significant way.
With the cost of housing in today's market, it's not uncommon to require the help of a lender. While the best investors prefer to pay in cash, the average investor will need the cooperation of a lending institution. That said, interest rates play an important role in buying a home and, subsequently, in the entire housing market. Low interest rates, in particular, can positively affect housing demand.
Paying less on your mortgage is an attractive incentive. Those who are undecided may be induced to buy a home if interest rates are low enough. For those who already own a home, they can be encouraged to improve if rates lead to higher sales. When rates rise rapidly, sales can increase as buyers try to close deals before they are forced out of the market due to rising borrowing costs.
While this is true, if rates continue to rise, they are likely to reach a point where they become a burden. As mentioned, low interest rates can boost significant activity in the housing sector. However, those rates are of little help if the borrower can't get funding in the first place. Financial institutions are not interested in granting loans regardless of the risk involved.
If the economy is weak or in decline, buyers with marginal credit or relatively low personal cash flow may struggle to obtain a loan. When the economy is booming, credit rules can be relaxed and the housing market can be further stimulated. The Government must be careful in its role of trying to keep the housing market balanced; often, the legislation that is applied has variable results and has an impact on other areas of the Australian economy. As perhaps the most basic concept of the economy, supply and demand will dictate the direction of the housing market.
Ideally, housing construction and sales markets should align with economic activity, but sometimes that's not the case. In strong economies, people are more likely to buy new homes, and in weak economies, they are less likely to do so. Of the factors affecting the real estate industry, mortgage rates are the only aspect over which buyers have some influence as individuals. If you're aiming to make a financially sound transaction, it's important to understand the factors that affect the housing market.
Trust plays an important role in the housing market, as people will be less willing to move and invest if they are not comfortable with what is happening in the economy or with the performance of the government. However, this is not the whole story, as there are other factors that influence a bank or lender's decision about the availability of funding and the rate at which to set it. The shutdown adversely affected more than 800,000 federal workers in nine different departments and agencies, including the Housing and Urban Development sector. San Francisco enjoys a reputation as one of the most sought after housing markets in the country due to the city's booming economy.
The economic cycle breaks when economic improvement begins and house prices reflect consumers' ability to pay. The change in income, the growth of children and the move: these are some of the factors that influence demand and can help investors find desirable real estate investments. It may seem worrying to think that the housing market can be affected by the way people feel, but feelings directly influence stocks; for example, if investors don't trust the changes being made by the Government or are concerned that trade figures will be slow, they will continue to be cautious with their activity. Housing construction is a vital indicator of a healthy economy and affects related markets, such as mortgages, land sales, raw materials and employment itself.