How to Spot What Drives the Real Estate Market

If you follow media headlines it’s darn near impossible to figure out what is going on in the real estate market. And frankly, the national housing numbers really mean nothing for real estate investors – and that is usually what you see in the news.The important thing for a real estate investor is what is going on in the backyard of your investment area. But even then how do you tell if your area is booming, slumping or recovering?The big difference comes in understanding what is actually DRIVING the market versus what is INFLUENCING it. And the thing I’ve always inherently known but never clearly understood is that the media headlines are almost always based on the things that INFLUENCE the market not the things that drive it.The influential factors are more sensational. Not too many media outlets are going to be excited to report that the population of an area increased by 8% for the third year in a row. It’s just not interesting or exciting. But they are going to jump all over any suggestions that a new harmonized tax is going to destroy the new home real estate industry, or that banks aren’t going to be lending money to anybody because of the tightening of rules, or that consumer confidence in house prices is at an all time high or an all time low.The difference? Things like interest rates, cost of borrowing, laws, consumer confidence and the investment alternatives like the stock market are all things that influence the real estate market. These are not actually the factors that drive it.The driving factors behind property markets, according to Kieran Trass’s extensive research (author of The Housing Bubble) are:Factors influencing demand such as population changes, construction, the number of people per household and employment levels;
Factors influencing the financial elements of house prices like the average rental rates, average income of residents, availability of financing;
Emotional factors like the number of days it takes the average house to sell, the number of listings on the market and the overall sales volume.The drivers of the market are what will actually take it from one phase to another and it takes a combination of factors to move the market not just one strong element. Market influencers, on the other hand, might present short term opportunities or red flags to be aware of but they aren’t driving the market into a new phase or out of an old phase.It’s been said before, but it’s worth saying again: Ignore what the headlines in the paper are saying about the housing market. Focus on what is going on in your backyard. And, while you’re checking what’s going on there pick up a copy of this book – The Housing Bubble – you’ll be glad you did.

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