Real Estate market is a volatile market much like the stock market. All factors in the economy such as inflation, boom, recession, unemployment, interest rates, government regulations etc. affect the market. Business cycles affect this market. Therefore a change in any factor will affect the real estate market whether positively or adversely. This gives rise to real estate market fluctuations. These cycles will affect the cost of the house as well as interest and mortgage rates. Therefore it will also affect your buying or selling needs of the real estate. If you are buying real estate for the purpose of investment as opposed to staying in it, the factors will affect you in different ways. As an investor, you would want to buy at when interest and mortgage rates are low. Whereas if you intend to stay in the house, you might purchase it even if the mortgage rates are high at a particular time. When economic conditions are booming, that is unemployment is low, there is more construction happening, people are buying more goods and services and the Gross Domestic Product (GDP) seems to be increasing, is the time when there will be more buyers than sellers. The reverse would be true when there is a recession and the real estate market would also fall. Another factor affecting the fluctuation is a wave or a trend. For example during the early 1990s, when the Internet and the software wave happened in the Silicon Valley, property prices rose to a great limit. There was a great demand for both residential as well as commercial property in Silicon Valley. However this wave, boom or trend was not seen in other areas. Hence sometimes the economic expansion factors can also be limited to a particular region. Recessions are down turn times, when there is less production in the economy and there is less or no construction happening. Investors would also like to sell their investments in houses. However from a buying point of view, it’s a best time to purchase real estate, as rates are low as are mortgage and interest rates. Of course the supply and demand of real estate forms a part of the fluctuations. Interest rates and credit in the economy affect the real estate market. Interest rates are further affected by Libor 6 month CD, Treasury Notes, Treasury Bonds, Prime Rate Treasury Bills etc. If the Federal Reserve thinks that inflation is likely to increase, then they will increase the interest rates, which will curb the credit in the economy. This will affect the purchasing power of people. As less money would be available to people to buy real estate. Hence real estate market is affected by a variety of factors, which work in tandem with each other and not alone.
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