How Does a Real Estate Market Work?
Now even if you are just thinking of buying some real estate, the first thing that any real estate agent, broker or realtor would tell you is to do your homework, not just sincerely, but regularly. Hence, here are some notes which would help you to grasp the basic mechanism of the real estate market. Now it must be noted that any kind of market under the sun works in accordance with the mechanisms of demand and supply analysis. In such a situation the following two conditions may be observed in the real estate market.
- Higher demand for property in a certain geographical region, tends to push up the price of the real estate in the said region.
- The second aspect is the price fall. Conventionally, the lack of demand leads to the fall in the market prices of real estate.
Now there are certain reasons as to why the demand for property increases or decreases. Here are some possible ones:
- The increasing trend means that properties in a certain region have high rising values. Such a rise is usually observed in cases where the region starts developing rapidly, or as a result of industrial regions in vicinity. In some cases, such as in several areas of New York or Washington DC, the demand simply rises due to the fact that earning population of the region is simply too large. Substantial economic empowerment or the creation of amenities also forces the real estate values to shoot up drastically.
- On the downside, there are also several rational reasons as to why the prices of certain properties tend to shoot down. A general downhill shift in the economic projections of the region is one cause that we experienced during the recession. A general drop in the economy, bankruptcies, foreclosures, excessive lending and breakdown of mortgage and lending industry are some of the reasons that lead to the fall in the demand for property in a certain region or locality. Industry experts have commented that reasons such as overcrowding, lack of proper civic amenities, or even pollution can lead to a substantial drop in the real estate demand.
On the whole, good demand leads to good market price, bad demand attracts bad market price is the common and also the universal rule of real estate market prices. Apart from these some phenomenon such as war, extreme disasters and government and laws made by the government can influence the values. However, it must be noted that such instances occur quite rarely.
Real Estate Trends in 2012
Now the following trends which have been explained are not applicable regionally or for some specified case, they are based on some simple generic observations. The real estate market and the automobile industry were the worst hit during the infamous and much hated 2007-09 economic recession. In 2011, the market was still reeling from the blow. In 2012, there are no immediate signals of recovery. The real estate prices are expected to continue falling, until demand picks up.
- The overall real estate market prices are going to remain quite low, that is, in comparison to the prices of the properties in the preceding periods which were substantially higher. Foreclosures, bankruptcies and lay-offs in the recession and the less number of mortgage creators and stricter underwriting conditions are going to influence such low prices.
- Trend-wise and on the graph these prices may seem to be discouraging and also not entirely so very nice. However, for people with enormous life savings, those with stable jobs, this is also a great time to invest in real estate, which have a relatively low market value. Now, it is very, important that one gets to know why the market prices are low. In cases where the market prices are low due to problems in the property, it is recommended that one should not invest. Apart from that if the market conditions have led to drop in its price, then it would prove to be a really great price to buy such a property.
- The mortgage market is also going through a substantial set of changes. One key change that is going to affect the mortgage markets is that the underwriting and approval rules are going to be stricter than before. So 2012 won’t be a good time to put money in the real estate sector for profits as the prices are going to continue falling. However, for those who are looking for homes and have ready cash on hand, this is a great time. Real estate, once beyond your reach due to high prices, is going to be within your grasp.
- The focus of common individuals has shifted to smaller homes and apartments and in contrast, the demand for larger suburban estates has come down.
- Lastly, the demand for new construction in suburban areas has gone down and in return the demand for apartment construction has increased.
- In upmarket localities of major towns in USA, rentals will bring in a good amount of dough, as the economy creates more jobs. With more demand for rental apartments, the rent is bound to rise proportionally. So things may finally look up for landlords and they may earn more. Ergo, cornering rental properties would be a good investment in areas where demand for such properties is high.
Now the regional trends and local markets are bound to contradict and differ a bit from the aforementioned trends. It is tough to predict how the market will perform all over USA, as the demand-supply equation varies widely. Still, you can certainly expect prices to continue falling overall, though they may rise marginally in some cases. Also the rate of price fall will depend, on the performance of local urban economies. Research thoroughly, before making any real estate investment decisions this year.