Real Estate has the advantage of being profitable whatever the market is doing – as long as you adapt your strategy to fit the current trend. So what factors can influence house prices?
When interest rates are high, so is the cost of a mortgage. This means that fewer people will be able to afford a large mortgage and will prefer to rent. The lack of demand will generally lower house prices. By contrast, when interest rates are low, this is reflected in mortgage rates and demand will rise. Knowing the direction of interest rates can help you anticipate which way the housing market is headed.
The cost of living – including renting – is linked to inflation. Longer-term investments such as real estate are considered a safe haven from fluctuations in inflation, except in extreme circumstances.
An expanding national economy usually translates into more money for investment in real estate on an individual level too.
External influencing factors
It is not purely market trends that have an impact on real estate prices. Other elements include:
Job growth and migration
More people coming into an area means an increased demand for houses, which will drive house prices up.
New shopping centres, schools and office buildings can generate interest in an area and attract more people to it – which will increase house prices.
Some neighbourhoods become trendy and vibrant quickly, particularly in large cities. Once new bars and meeting places open up, prices will follow the trend.
Making the most of the current trend
Careful examination of the factors above will give you an understanding of whether the market is up or down. There will be opportunities to be seized, whichever way it's headed, as long as you employ the right strategy.
When the market is up – find properties to fix and sell quickly. You will add value to the property and profit from the upward market trend. If you think the market has reached a peak and will probably start to go down, look for highly motivated sellers and make an offer which is lower than their asking price. Once you've bought the property, rent it and wait for the market to go up again.
When the market is down – look for great deals from sellers who are keen to get rid of their properties. A few examples are new unsold homes, distressed properties, bank-owned properties and tax sales. Pick the best bargains and rent them until the market recovers.