Understanding how a market moves and what causes it to make a crucial pivot point is an essential skill to learn and master for any investor, and whether you trade stocks, options, or bonds; these market trends and economic signals are your best friend when it comes to buying and selling. Likewise, the real estate industry and the housing market are no exception to this rule and are heavily impacted by the economic forecasting and overall outlook.
However, most newbie investors have grown complacent to understanding trends, reducing their earning potential, and increasing their risk of losing out when the market swings the other way. So, today we’ll be exploring what real estate trends and market indicators to watch out for and how these signals influence the supply and demand of the housing market.
Looking At The Prevailing Interest Rates
Of course, we can’t talk about real estate trends without touching base with interest and mortgage rates, the backbone of any huge purchase. Buying something as expensive as a home isn’t typically possible through straight cash, and even if you could, it’s not financially sound to tie down that much money from the get-go. Therefore, prevailing interest rates can tell you a lot about how well the market is doing and where it’s headed.
- Increased Consumer Confidence And Demand: Low-interest rates point to increased consumer confidence because the cost of purchasing a home and financing one is more affordable. As a result, there’s an increased demand for homes as more and more people consider taking the opportunity to buy.
- Costly Financing And Acquisitions: On the other hand, if interest rates are extremely high and heavily affected by inflation, this will do the exact opposite and dissuade people from buying homes. Furthermore, real estate investors suffer from costly financing options and acquisitions as well, which increase the amount of cash you invest.
Additional Housing Supply
The real estate market, like any other market, also follows the principle of supply and demand, and when there’s additional housing supply and enough money to go around, this indicates an active market. It encourages more people to buy and increases the need for competitive prices.
- New Housing Starts: When there’s a construction of new housing starts, housing completions, and overall development for public and office buildings, this can point toward a very bullish local housing market. More supply and active engagement in the industry is a positive sign and encourages investors to renovate their properties with new windows, remodeling projects, and other scalable features.
- Growing Population: Another thing to watch out for is the growing population because more people means an increased demand for more housing. For rental properties, this means higher rates and less vacancy time, and for homebuyers, there will be an influx of people looking for a house and settle.
Local Market Outlook
Likewise, it’s also equally important to understand the local market outlook. There are some key factors that can influence how well your real estate properties will fair given the local context, from local guidelines to state laws and so much more. So, take the opportunity to understand the opportunities and inherent risks in your locale.
- Rent Delinquency Rates: Rent delinquency is a common problem in rental properties, and the last thing you want eating on your net operating income is a tenant that refuses to pay and doesn’t follow your signed contract. As a good rule of thumb, look into the local delinquency and vacancy rates to give you a general idea of how well you can turn a profit in a certain location.
Things To Remember
With all those trends and indicators laid out, there are some simple rules we recommend following so that you stay on the safe side of things, regardless of how good or bad a market swings. However, feel free to add more restrictions and guidelines to your real estate investing strategy and tailor-fit according to your needs.
- Never Time The Market: Number one, regardless of the fortunes made from catching and riding the initial wave, never try to time the market. You’ll only end up holding onto your money which could have been invested long ago. Just emphasize on buying value and when the current price is low after accounting for current market conditions.
- Buy Long-Term, But Have An Exit Strategy: Number two, if you don’t want to be super aggressive with your investing plan, we recommend buying for the long-term gains but always being ready with an exit strategy. Investing is always about the long-term, but since we can’t foretell when a market crash might happen, it also doesn’t hurt to be ready with an exit strategy.
Getting The Most Value Out Of Your Real Estate Investments
Overall, understanding trends and market indicators is essential to getting the most value out of your real estate investments. So, be sure to take your time and include them in your market analysis to increase your earning potential.