Examining the Real Estate Market

What goes up must come down, and vice versa -- especially when it comes to examining the real estate market. Supply and demand are potent factors in assessing real estate markets, in addition to facilitators and unique modification characteristics.

The supply side. Developers and renovators are the major suppliers in the real estate market. The difference is that developers prepare uncultivated terrain for building purposes, adding merchandise to the market, while renovators refurbish existing buildings. However, renovators still count as housing suppliers.

The demand side. Owners, users, and renters all comprise the demand side. The majority of owners are also users. It means they also live in the homes or make direct use of commercial properties they buy. Pure owners only function as investors who rent or lease out their homes or businesses. Renters are strictly consumers, but they still enhance the demand pool.

Facilitators: These are institutions and individuals who make possible the selling and buying of real estate. Lawyers, agents, brokers, banks, and other lending institutions fall in this category.

Demand for housing. For the most part, demographic factors determine housing demand. Other important contributors include income levels, housing prices, and the accessibility of credit. How these interact to determine housing prices is a complicated process. However, the simple answer is that the demand for housing goes down when income drops, housing prices rise, and credit becomes hard to obtain.

Supply of housing. The available quantity of new housing (flow) is determined partially by the cost of land, labor, and prices of existing homes. In addition, improvement expenses, administrative expenditures, building materials, and related inputs like electricity costs (it takes electric power to construct buildings) contribute to availability. Higher costs will be reflected in higher home market values, but they also can lower the supply.

Stock supply, or the availability of resale inventory, makes up the largest real estate market share. It is regulated by individual housing demand, renovation costs, transaction expenses (fees), and the housing prices themselves.

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