Factors that Influence Demand-
In real estate, demand is how many people want to buy homes. A variety of factors influence this:
Interest Rates: Interest rates play a vital role in housing demand. If all things are equal, then the lower interest rates, the higher the demand for real estate. Low interest rates mean that the cost of borrowing is lower and homebuyers can afford to borrow more by way of a mortgage and, consequently, can spend more on a home. Also, high interest rates mean that the cost of borrowing is higher and homebuyers can afford to borrow less in a mortgage and, therefore, can spend less on a home.
The Economy: The overall economy plays a vital role in the demand for real estate. When the economy is good, the demand for real estate tends to be higher. However, when the economy is struggling, demand for real estate tends to be lower.
Affordability: Affordability is the third factor to consider. This simply means how affordable real estate is in your desired city to your paycheck. When home prices are high relative to income, demand tends to be less, whereas when home prices are low relative to income, demand tends to be higher. The affordability of renting also plays into the demand for real estate. If renting is a lot cheaper than owning a home, people may choose to rent instead of own.
Immigration: Immigration also plays into the demand for real estate. The more immigrants there are in a particular city, the higher the demand for real estate.
Factors that Influence Supply-
Active Listings: Active listings play an important role in the supply of real estate. More active listings mean there’s a greater supply of homes for homebuyers to choose from.
New Homes: There are two main types of homes: existing homes and new homes. When there’s a mismatch between housing demand and supply, new homes can help fill the gap. However, there have to be enough new homes built to keep up with demand. When a lack of serviceable land and government red tape gets in the way, the new homes being built simply may not be enough to keep up with demand, thus leading to higher home prices.
Permits: In new home construction, permits influence the supply of housing. If there’s a lot of government red tape and it takes a long time to bring new homes to market, there tends to be a lower supply of homes, which means that home prices tend to be higher.
Land Use: Land also plays a major role. At a high level, land use is as the name states – how you can use the land. Land use determines whether you can build residential or commercial properties there. If there’s a mismatch between the land use and the demand for new homes, it can lead to a shortage of homes and an increase in home prices.
