Factors influencing Real Estate growth
Posted on February 14, 2008 in the Real Estate Economics category
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Before a potential investor becomes involved in the real estate market, he or she should seek education about the many different factors influencing real estate. The real estate market can be volatile, but the volatility can be mitigated by careful planning on the part of investors.
Real estate growth depends on many different factors including the strength of the market in general and the financial stability of those in both the real estate and financial sectors. It’s essential for a new investor to understand the factors influencing real estate growth in order to know when to buy and sell and when to maintain the current status quo.
That isn’t to say that changes in economic condition will not have a negative effect on real estate growth, but as anyone who has ever rented or paid a mortgage knows, regardless of the economy, rents and house prices continue to rise at an alarming rate. For the real estate investor, that is a plus, but for the consumer who must pay the higher prices for rent and mortgage payments, it’s a struggle. Real estate growth is a windfall for the investor whether it means being a landlord or a property buyer/seller.
Of course, some major economic changes can definitely make a difference in the real estate market. One of the major factors influencing real estate growth is the interest rate. For example real estate growth slowed substantially in the late 1970s and early 1980s when mortgage rates were close to 20 percent.
The real estate market didn’t stop completely, but it slowed to the point that many homeowners lost interest in selling their homes. Commercial real estate growth slowed more than that of residential property due to a slow down in new businesses. Fortunately, this is not a phenomenon that happens very often in real estate growth, and we have not seen it since the 80s.
With mortgage interest rates still less than six per cent in most places, real estate growth is still healthy. Of course, we know interest rates can change at any time, but there is no reason for us to think interest rates will reach 20 percent as they were in the late 1970s and early 1980s. Therefore, it’s reasonable to believe that real estate growth will remain strong.
The key is in the state of the economy and how investors handle it in order to keep the property values from decreasing. It means keeping up on their properties so they do not become run down and unusable, thus affecting property values in an entire subdivision. Investors and/or landlords must do their part to keep investment properties from suffering the same fate that residential properties do when there is a depressed economy.
The factors influencing real estate and real estate growth will always be with us, but we have the power and resources to overcome them thus eliminating any negative factors influencing real estate growth. In most cases, real estate doesn’t decrease in value, so investors are safe with their investments. Of course, it is important to keep your eyes open for market changes. Smart investors watch for market fluctuations to make wise choices about buying and selling real estate for profit.
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8 Responses to “Factors influencing Real Estate growth”
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Real Estate investing has become a lot more tricky in most parts of the country as home values have dropped significantly. The days of the market going up year after year by large percentages are going to be taking a breather. It is crital to buy right especially in a market that has not bottomed.
One factor is the inventory of housing in a certain price range. In my market there is loads of upper end inventory, but almost nothing on the lower end. Lowerend housing will make a pretty good investment.
I’m in Austin and our market sat out the double digit growth unfortunately. On the bright side we are still seeing the growth that we’ve seen in the last 5 years. We stay pretty consistent at about 6% a year for most residential properties. I don’t think I’d take the massive growth if it had to be followed by the price drops. Slow and steady wins the race.
Joe
I’ve been watching the market here in Massachusetts closely for the last few years and i still don’t see a bottom anywhere in sight. with the way this economy is headed I’ll be sitting out the rest of 08′ as well.
Interesting post – thank you for all the useful information.
quiet a lot of information a real estate investor must know.it is true that a real investor must have a sharp view on the market changes in order to make wise decisions and be successful.thanks for the post.
As a potential investor, you need to look at environmental factors also. For example here in Vernal Utah there is a huge boom in the industry only because of the investment in shale oil. You can read more about that on our website.
There is so much information that real estate investors need to know! This is a great article. It’s so important to know the current trends in the real estate market in order to be successful.