Key Factors Which Impact on Real Estate Market

Topics: Real estate, Investment, Economics Pages: 2 (422 words) Published: October 10, 2010
Key factors which impact on real estate market
As on each market on the real estate market the main factors which determines the price are supply and demand, but let looks particularly on the factors which affect on the supply and demand, they are: credit interest rate; rate of unemployment; growth of GNP; inflation; real estate market; bureaucracy in building sphere

Interest rate
Interest rates of interbank, have as profound an effect on the value of income-producing real estate as on any investment vehicle. Because the influence of interest rates on an individual's ability to purchase residential properties (by increasing or decreasing the cost of mortgage capital) is so profound, many people incorrectly assume that the only deciding factor in real estate valuation is the mortgage rate. However, mortgage rates are only one interest-related factor influencing property values. Because interest rates also affect capital flows, the supply and demand for capital and investors' required rates of return on investment, interest rates will drive property prices in a variety of ways. A 1% reduction in the short-term interest rates is associated with ½ to 1 1/2% increases in house prices within a year. The effect is strongest in Canada and the Netherlands, weakest in the U.S. and the UK. Rate of unemployment

It is easy to understand that a person without a job will be unable to purchase a house. Therefore, as unemployment rises, potential purchasers are removed from the market resulting in a decrease in demand.

'Objective' factors only explain a portion of house price rises and falls. Much of the rest is cyclical, and is explained by the market's own history. Changes in macro-economic variables do (also) tend to impact house prices. Increases in national income (GNP). In a recent BIS six-country study (US, Canada, UK, Australia, Netherlands and Ireland) a 1% increase in GNP growth was associated with a 1-4% rise in real house prices after three years....
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