Factors Driving Up Real Estate Prices
The real estate market is one of the most important markets in the country and is responsible for millions of dollars of economic activity. Real estate includes real property such as buildings and land consisting of its accompanying resources like water, plants or minerals; immovable real property of that nature; and equity vested in the same, whether by way of mortgage or a deed of trust. It also includes the underlying commodities that are bought and sold, including oil and gas, precious metals, equities in banking and insurance businesses, partnerships in the mining, oil and gas, and financial assets. Real estate tends to be cyclical, with residential real estate always experiencing a boom, and commercial real estate seeing a slump during recessions. The current economic crisis has had a significant impact on the real estate market.
The real estate market has been battered by falling housing inventories and low interest rates, which have reduced the number of buyers and increased prices. The current slowdown has been led by lenders, who have tightened their lending criteria to borrowers, resulting in a fall in applications and a subsequent drop in interest rates. Lenders have been less willing to extend credit to buyers, resulting in fewer transactions on the secondary market and reduced liquidity. This has led to a glut of properties on the market and reduced opportunities for buyers to find quality properties at bargain prices. The overall situation has resulted in reduced supply and increased demand, with increased competition leading to price increases.
One of the most important factors contributing to the current status of the real estate market is the general state of the economy. As indicated above, lenders have tightened their lending criteria in response to the current recession, and lower interest rates have affected the overall financing conditions of the industry. In addition, the decline in real estate investment has reduced the number of construction jobs available, and has resulted in a shortage of workers in the construction industry, as well. Finally, lower interest rates have resulted in a decrease in the amount of cash flow available to businesses conducting business, creating more of a challenge for small businesses to obtain credit. Overall, the state of the economy is tied to many economic factors, and some experts believe that this overall unfavorable condition is one of the causes of the Great Recession.