The economy is the sum of all the transactions that take place across a number of markets. These markets may seem autonomous from one another but in fact, a hiccup in one of these can send a wave of negativity throughout the rest of the markets across the board. Meanwhile, when one economic indicator shows robust statistics, usually the rest also follow with the rosy outlooks.
Lessons from a grim past
The housing market is not a stranger to both rough sailing and optimistic vibes that the economy – both on the national and global levels – can bring. Recalling the global recession in the early part of this century, its root cause was the overconfidence of several home mortgage lenders to issue loans even to those with poor credit histories. Many eventually defaulted on their loans as the initial excitement in the housing market began to wane. Major mortgage firms also closed shop, declaring bankruptcy, and it was downhill from there.
The most distinct takeaway from the 2007-2008 global economic crisis is the more stringent standards for granting home mortgages. The term, subprime mortgage is now only discussed in hushed tones among those in real estate and banking as its risks led to the downfall of the global economy.
Factors to consider
Here are the following factors that move both the economy and the housing market:
- Their inclination to spend
- Conditions that incentivize or influence how they spend
Understanding the demographics of a population within a certain area can give you an idea of the real estate climate, as well as the ideal pricing of properties here. Age, income, migration patterns, job opportunities, and other minute demographic details also determine an area’s economic status. When these statistics are all in the green, people tend to spend more.
Economic boom vs. slowdown
During an economic boom, wages and the employment rate go up, production is at an optimum pace, and prices are at a comfortable range. The money supply rises and as a result, housing demand and home prices go up as well. On the other hand, an economic slowdown will drive spending down and consumers will be more reluctant to acquire new property.
Interest rates can also affect home-buying demand. Low interest rates mean better and more affordable mortgage terms for getting a home. Conversely, high interest rates will drive up mortgage costs and minimize real estate demand. Rentals sometimes become a more affordable option in these conditions.
Government policies and updates
As a key player that can influence supply and demand in the economy and the housing market, the government can step in and introduce tax credits, deductions, loan programs, and subsidies for homebuyers and property owners.
Keeping track of these tax-funded programs and the overall health of the economy is recommended for every property owner from the standard single-family home buyer to the seasoned real estate investor. Because anything that will either make it grow or put a dent to it will very well do the same to your property and the real estate market in general.
To bolster your confidence in your plans for a real estate transaction, the National Association for Business Economics recently aired its positive outlook for the US economy. This is wonderful news should you decide on investing in La Cañada or Pasadena real estate.