We see the prices of real estate fluctuate over time. Sometimes the market is up, and sometimes it is down. The question is, what drives these price fluctuations? Do they just happen, or are there key factors that drive the real estate market and cause prices to fluctuate either up or down? The answer is that there are most certainly some key factors that affect the real estate market! We will look at three of these key factors below and how each one of them can impact the prices of real estate. 

1. Demographics 

On a broad scale, more and more people are being born on the earth, yet the earth is the same size it has always been. Considering supply and demand, it stands to reason that house prices have generally gone up over time. Furthermore, certain areas often experience a “boom,” which could be the economy doing very well in that area and creating a greater demand for people wanting to move to that area, pushing housing prices up. The opposite is also true. There could be a location that is not doing very well economically, and hence there is a low demand for housing in that area, and the prices could drop. 

2. Interest rates 

If you take out a loan to buy a property (called a mortgage), the interest you need to pay back on that loan is calculated using the interest rate. The lower the interest rates are, the more people will likely want to loan money, pushing the home prices up as there is an increased demand to buy homes. Conversely, if the interest rates are high, there will usually be less demand for people to buy homes, as the mortgage repayments will be much higher, and this could cause the price of real estate to move down. 

3. The economy 

A large percentage of people taking on loans and buying homes are the middle class. The state of the economy can therefore have a significant impact on the home prices. If there is high inflation, and the job market is struggling, meaning that there is a lot of unemployment, there will likely not be as many people able to afford to buy a home and repay the mortgage, as opposed to times when the economy is doing well, and people are stable financially. 

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