5 Key Signs a Real Estate Market Is Poised for Stable Growth
Written by
Angela Corry
Edited by
Gary Dudak
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If you’ve been paying attention to the real estate market over the past couple years, you know just how crazy it’s been. Some buyers have been waiving inspections, making cash offers and paying way over asking price to secure their new homes. Others have disappointingly walked away, waiting for the market to cool or for rates to lower.
Understanding what’s going on with the real estate market — and where it’s headed — isn’t always clear. There are lots of factors that play into market conditions, and as much as prospective buyers would benefit from it, no one can accurately predict where things are headed.
That said, there are several signs that indicate a stable, growing real estate market. While you shouldn’t take these signs as a guarantee, they may help inform your decisions when it comes to buying and selling real estate. Continue reading to learn the five signs that may indicate a growing real estate market, courtesy of real estate expert Doug Greene.
Less Supply
One of the most basic laws of economics — supply and demand — heavily impacts the real estate market. When there’s less supply, i.e. fewer homes on the market, prices on the limited supply will increase.
Greene, owner and operator of Signature Properties, said less supply may be one of the most important signs of growth. “Less supply always sets the market up for strong and sustained growth. You really don’t need a massive amount of demand to drive up asset prices if supply is limited.”
More Demand
As Greene alluded to, the flip side of less supply in the real estate market is more demand. When there’s less supply, demand tends to increase. And when demand increases, supply tends to decrease.
An increase in demand, much like a decrease in supply, signals rising prices and a growing market.
Lower Interest Rates
Interest rates heavily impact a buyer’s ability to purchase a home. When taking out a mortgage, the interest rate determines how much it will cost you to borrow. A higher interest rate means you’ll pay more for your home over the life of your mortgage — sometimes a lot more.
Low interest rates tend to encourage more home purchases because they make homebuying more affordable. On the other hand, higher rates can discourage both buyers and sellers. Greene added, “Higher rates can also prevent homeowners from selling their current property, which might be financed at much lower historical rates.”
Falling Unemployment
Unemployment rates impact and signal future trends in the real estate market and the economy as a whole. Falling unemployment tends to signal a healthy, growing economy and a stable real estate market.
However, when unemployment rises and people start losing their jobs — or start to fear losing them — home sales tend to decline.
Steadily Appreciating Prices
Like many other markets, the real estate market is cyclical. That means sustained growth — especially rapid growth — can’t continue indefinitely.
“If we are just coming off of a long accelerated growth phase, then maybe the market is not poised for continued growth,” said Greene. “A general rule of thumb for a growing market in real estate is 2% to 4% annual appreciation. At 2% to 4%, we are in line with the average annual rate of growth and also at a level that is sustainable.”
Where the real estate market is headed is never a sure thing. After all, there are a wide variety of factors that continuously affect the market. Unforeseen events, like the recent global pandemic, can also impact real estate in unexpected ways. However, key metrics like supply, demand, interest rates, unemployment and price history may be able to help buyers, sellers and investors alike gain some insight into where the market is headed.
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