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The real estate market is a place where homes can be bought and sold. The function of the market is to provide a setting in which supply and demand can determine market value, making it beneficial for sellers and buyers to trade. The forces of supply and demand in a real estate market decide how prices for homes are set. When supply increases and demand remains stable, prices go down; on the other hand when demand increases and supply remains stable, prices go up. Real estate markets are called “local markets” for the reason that each geographic area has different types of homes and different conditions that drive prices.
Two characteristics of real estate: uniqueness and immobility, rule the way the market is reacting to pressure of supply and demand.
1. Uniqueness means that no matter how alike two properties may appear, they are never exactly the same. Each is located in its own unique geographic area, and two homes are never exactly the same inside.
2. Immobility relates to the fact that property cannot be moved to satisfy demand where supply is low.
Besides supply and demand there are many other factors that may affect real estate market like natural disasters which can disrupt market trends. Other factors may include sudden changes in financial markets, unemployment, and foreclosures that can disrupt a seemingly stable market. It is important to be aware of and recognize predictable signs of the cycles in real estate market to better help you in making intelligent sales and purchase decisions.
Factors that tend to affect the supply side:
• Government controls and financial policies – the Federal Reserve Board sets a discount rate of interest for the money it lends to its members banks which has a direct impact on the interest rates banks charge to their borrowers. These interest rates play a significant part in buyers’ ability to purchase homes. Any government action will have some effect on real estate market: policies on taxation of real estate, land use controls, building codes, and zoning ordinances can shape the character of particular community and control the use of land.
• Labor force and construction costs – a shortage of building materials or an increase in prices of those materials can slow down significantly building new construction homes. Shortage of skilled labor force will have negative impact as well.
Factors that tend to affect the demand side:
• Population – people tend to move all the time due to different factors: it may be due to economic changes like high unemployment, social concerns like going green, people moving from colder to warmer climate.
• Demographics – Demographics can be viewed as the essential information about the population of a region and the culture of the people there. Family size, the ratio of adults to children, the ages of children, the number of retirees, family income, the growing number of single-parent and empty-nester households are all demographic factors that contribute to the amount and type of housing needed.
• Employment and wage levels – deciding about what is better to buy or rent and what amount to spend on housing is closely related to income. When not too many jobs are available or wage levels are low, demand for real estate usually drops.
There are different factors that will determine whether the house will sell or not in an open market. The important ones are:
• asking price
• condition of the home inside and outside
• marketing tools that will attract the buyers
• financing that will be available to the buyers
• market conditions
The above factors must be in a favorable position with regard to similar homes the house will be competing with at any given time in order to sell it for the best possible price with the least inconveniences. If the house does not sell, the fault will lie with one or more of the above mentioned factors.