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5 Key Factors Affecting the Property Market

An intricate relationship exists between economic indicators and the property market. 

An advanced property investor will dissect these factors affecting the property market, and use this knowledge to their advantage. 

Understanding how economic growth, employment rates, interest rates and other factors impact the property market is the perfect way to level up your investing skillset.

Let’ s go through some of these factors affecting the real estate market in detail.

1. Interest Rates

This is a factor that many property investors, both seasoned and beginners, will already be familiar with. 

Fluctuating interest rates can really affect the individual’s ability to purchase property. But why?

Generally, lower interest rates will equal lower mortgage costs. When this occurs, the demand for real estate increases, which means prices will rise.

And of course, the inverse is true: as interest rates rise, so does the cost of a mortgage. Demand lowers and property prices generally decrease. 

Buyers will generally look to purchase when mortgage rates are lower, which leads to demand increasing and prices rising. 

2. Economic Growth

Another major factor affecting housing prices is economic growth.

As the economy grows, people’s incomes tend to rise. Those same people will be in  a better position to spend that money on homes. 

Once again, demand will increase. Employment is a major indicator of economic growth, with employment rates rising, so does the economy.

This generally means that when employment or economic growth is on the decline, many people will not be in a position to buy or make repayments on their loan.

This can close people off from the property market, which results in the market falling as there is no longer that strong demand for property.

For a closer look at when is the right time to buy property in Australian, check out the video here:

3. Government Policy and Legislation

The laws and policy of the government of the day will also be a factor to keep an eye on. 

Demand for real estate may be increased through incentives put in place by the government. 

This could include tax incentives, subsidies and deductions that will increase the appetite of certain buyers. 

An example of this is the various incentives in place to encourage first home buyers to purchase property. 

It’s worth staying informed of these different schemes and policies actioned to drive demand and prompt purchases.

Not only does it provide an important indicator of when there might be a temporary boost in demand for real estate, but there may be an opportunity to take advantage of these policies and subsidies!

4. Change in Demographic

The fourth key factor influencing the real estate market is a shift in the demographics of a place.

This will generally include migration from other cities or states, immigration, and the composition of a population (age, income etc.)

The general composition of demographics within a place will generally play a role in the house prices of that region. 

As people need a place to live, and the preference is usually to buy over renting, population increases driven by migration and immigration will generally drive demand.

It’s a good idea to keep an eye on what areas generally are experiencing a boom population wise to get an indicator of demand and house prices as a result.

But it’s also important to look at what is causing that population boom. Is it migrant activity, where people are looking to permanently move and settle in that location? Or is it driven by workers looking to gain temporary work that likely won’t settle in that location?

Similarly it’s important to look at other characteristics as well. 

Age can be a big one, as well as the size of household. Is it full of young families looking for somewhere to settle long-term? Decreases in average household size can be an indicator of an increase in household demand and a rise in prices.

5. Location

Location can be another critical factor that affects the real estate market. 

It’s important to zoom in and look at specific areas and suburbs rather than simply dissecting how these indicators look at  a national or even state level.

Don’t get too caught up on a State’s economic growth, but instead focus on data at a granular level. Look at the population growth of a suburb or the vacancy rates of a particular part of a city. 

Just because national house prices are dropping, doesn’t mean there aren’t areas still experiencing rising property values. 

The factors affecting the housing market will be location specific, and it’s important to keep this distinction in mind when considering where to purchase next. 

The bottom line…

Of course, there are a range of indicators that need to be explored before making that big property purchase.

But understanding factors such as economic growth, interest rates, and relevant government policies and legislation will go a long way in helping you develop your knowledge and make informed decisions.

PK Gupta
Published: 10 Apr 2024


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