Most people’s wealth is made up of real estate, and this is especially true for American homeowners. In 2019, 64.9 per cent of American families owned their primary residence, according to the Federal Reserve’s Survey of Consumer Finances. 1 For many investors, the real estate market’s size and scope make it an appealing and profitable sector. Let’s examine the systems and key components influencing the real estate market.
There are major factors that drive the real estate market.
Demographics
Demographics reveal the age, income, and regional preferences of current and potential purchasers, as well as how many are retirees and how many are looking for a vacation or second home. An investor should the importance of our demographics of and area that can affect buying and selling decisions.
Interest Rate
Low-interest rates attract more buyers due to the cheaper cost of obtaining a mortgage, but they also increase demand for real estate, thus driving up prices. As interest rates rise, the cost of acquiring a mortgage rises.
The Economy
Investors can limit this risk by purchasing REITs or other diversified holdings that are either not related to economic cycles or can endure downturns. An investor should be conversant with the state of the economy and its sensitivity to real estate properties within the area.
Government Policies
Tax incentives, deductions, and subsidies, as well as other government policies and legislation, can help or hurt real estate demand.
