The 3 Main Drivers of Your Real Estate Market

With things warming up in the Spring and Summer we are seeing much of the same in the real estate market, but it’s not across the board. With home prices falling in California, Texas and Idaho according to CNN Business , but staying the same or stabilizing in Massachusetts and New York, it can be hard to get a real pulse on which way homes prices are trending, especially in your specific area. If you’re waiting with bated breath every time a new statistic comes out, and left in confusion and a pool of sweat on if that data applies to you, then understanding the levers and drivers of real estate might help you reduce your stress, heart rate and sanity for the long term. Getting familiar with foundational real estate information will always help you if you’re buying or selling a property in the near future. Here are the three main drivers of any real estate market:

1.??????Supply -?Yes, we are jumping into the heart of economics so flash back to the wonderful memories in college when you were asked what are the main drivers of any economy, and of course you knew the answer, supply and demand. We will get to demand in a moment but let’s get a real break down of what supply means within real estate. This is the amount of homes that are currently on market, coming to market and being built to come to market.

Factors that effect supply:

• Seasonality- In the Spring we usually see more homes listed because many sellers like to present their property in the best light possible, with lush green landscaping and good warm weather, it brings out the potential buyers and gets them more offers. The winter will see less homes
• Mortgage Rates – This is a solid indicator of if we will be seeing more homes become available in the near future. With rates higher owners don’t want to sell their current homes that have a low mortgage rate and payment, or no payments at all. So, until rates come down many home owners aren’t going to think about selling. If rates are high you have less supply, when they are lower owners are more open to listing and selling which equals more supply.
• New Construction - Developers, flippers and builders are always bringing new product to the public. Finding out how many permits have been issued in your local area over the last 8-12 months could give you a better idea of how many new homes will be coming to your market. According to the most recent US Census Bureau data the average time to build a single-family house is 8 months but that number can vary depending on your area’s proficiency in zoning and issuing permits.

2.?????Demand - The real driver of prices equals demand for a particular supply. To get the basics out of the way when supply is low and demand is high that will bring up prices, if supply is high and demand is low then you’ll have lower or falling prices. What factors influence the amount of demand you’ll have in your market? Anything that is going to push more people to buy or live in your region is increasing the demand in that market.

Factors that effect demand:

• ?New Businesses – Large corporation opening a business in your area, think Amazon or pharmaceutical companies are going to bring people from far and wide to live close to, and work within, that business. Regardless of remote working many businesses still need employees physically at work to get things done and this equals more demand.
• Mortgage Rates – Yes, this factor effects supply and demand! If they are low then you have more people that can qualify to get a loan and buy a home increasing overall demand, if rates are high less people can qualify reducing demand slightly.
• ?Geographic & Legal Characteristics - If you have an excellent school system, if you live close to transportation like train and bus lines, if you have low taxes, all of these can be factors that will increase the demand in your area.
• ?Growing Population - The US Census Bureau databases offers extensive data on what areas of the US are growing and it is worth taking a look to see if the area you want to move, or currently live in, has an increasing or decreasing population.
• ??Seasonality - There are patterns in the year that increase or decrease demand. Spring was already noted as a high demand time due to more families looking to move during the summer break when kids are out of school. The winter has less buyers that want to be out in the snow, rain and cold to view homes.
• ??Investment Risk – Everyone wants to protect their resources. One way people do this is by investing in stocks or cryptocurrency, sometimes artwork but when you see volatility in other markets you can bet many investors will be pulling their money out of those situations with high risk and putting it into a safer investment opportunity. This could be real estate which has always been a great way to diversity your portfolio. So, keep in mind if you see stock prices falling you may soon see increases in the real estate prices as investors start storing their resources in a less risky market.

3.?????Psychology - Regardless of how we try media, social mediums, reports and talk shows influence our buying decisions. When the market is hot people are clamoring to ride the wave and sell their home at a high prices. When media is forecasting an impending crash we see many home owners steer clear of any notion to sell. Regardless of if the media we are listening to is true or not it influences buyers and sellers alike. Psychology is one of the harder drivers to track which is why when you see everyone going in one direction it could really be worth your time to review if there is opportunity in the market.

• Television / Public Broadcasting – If news anchors are giving positive information about the market you can bet sellers will be more interested to list their home, think headlines like the housing market is hot right now or home prices are going way above asking prices. Opposite is true for headlines like a crash is coming or home prices are dropping.
• Mortgage Rates – They effect everything but when extreme changes happen you can bet that buyers will hesitate to continue shopping for a home if interest rates are quickly increased. If you see a reduction in rates you may see an influx of buyers and more bidding wars for a low supply.
• Friends / Family – Grandma may have bought her home for $25,000 in 1940 but things have changed greatly when it comes to today’s market. Regardless when friends and family say things about the market it can have a substantial influence on how we feel moving forward. If whispers in a community are positive or negative it will effect the supply and demand in your area which is why it’s critical to use data driven analysis rather than emotional factors.

Keep these three dynamics in mind you’ll have a better foundation for analysis when it comes to making your own decision when entering the real estate market. For large investments and huge purchases like these it is critical to ask questions and seek out as much knowledge as possible prior to making those financial decisions. Working with an agent in your area that has a firm comprehension of these factors will give you an edge in your investments and achieving your real estate goals. If you want to discuss any of these dynamics or review the information in the article I am happy to speak with you. Reach me any time at [email protected] or at www.CammiBailey.com .