4 Key Factors That Drive the Real Estate Market

You've likely heard that real estate prices fluctuate based on your location. Events in one region often don't influence another. While this is mostly accurate, there are some exceptions.

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Jan 21, 2021

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In truth, certain universal factors impact the real estate market no matter where you reside. What are these variables? In this post, we'll explore the five key factors that drive the real estate market and discuss why they impact home prices nationwide.

Demographics

Demographic factors like age, race, gender, and median income are frequently overlooked but highly important for property investors. These aspects help predict real estate market trends, influencing investment decisions. 

For instance, recognizing that an area is popular among aging baby boomers and retirees or appeals to young millennials starting families and careers provides better insight into your potential buyers or renters. 

To answer the famous question, should I keep my house as a rental property? Understanding the local demographics is essential. This understanding will also guide your choice of the best type of rental property and what features to seek in an investment property.

External Investors

The proportion of external investors undeniably shapes the real estate industry. When a country is friendly to foreign investors, the real estate sector flourishes. When investors bring their resources (such as cash, human capital, machinery, technology, and equipment) into a country, they need space to manage these assets efficiently. This is where real estate investment comes into play. The real estate industry offers investors various options. These include factories, warehouses, offices, showrooms, residential properties, and even land or plot investments.

Economic Conditions

The economy and the real estate market are interconnected. When one improves, the other typically does too, and when one declines, the other often follows suit. This relationship is why economic downturns are frequently blamed for slumps in the real estate market. Firstly, the overall health of the economy significantly impacts real estate values. Secondly, the job market influences how much people can spend on homes. A city with a stable and growing job market tends to have a stable and growing housing market.

Job market growth is important because it attracts new residents and boosts population growth. Markets with more job opportunities attract more people. Since tenants can afford higher rents become justifiable for those investing in rental properties in such markets. Therefore, property investors should consider employment rates and projected job growth in the real estate market. Utilizing our property finder tool can help identify the best rental properties for sale in the city.

Supply of Homes

Property investors should closely monitor supply and demand for several reasons. Firstly, it determines whether the market favors sellers or buyers. Additionally, a limited supply will drive up rental property prices, while an excess supply will cause prices to fall. Understanding this dynamic ensures you make informed investment decisions, whether buying or selling.

Astute real estate investors also pay attention to future construction and new developments entering the market. Ensure that the housing supply can meet rising demand as more people move to the city. Conversely, investing in areas with more units than incoming residents can lead to high vacancy rates. Experts suggest a balanced real estate market typically has four to six months of inventory.

Endnote

Owning a rental property can be very profitable. Success hinges on choosing the right real estate market. Skilled investors know that various aspects can make an area more or less attractive for investment. Although you cannot control these factors, it's important to stay aware of them to make informed investment choices.

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