Why identifying market trend is important - Part 4

Several economic factors play a definitive role in identifying future market trend. We will explore these aspects in detail on this segment.

The key components from the economic perspective for our discussions are:

1. Interest Rates Movements

Low interest rate is generally perceived to improve consumer confidence in the real estate market. The affordability barrier is seemingly lifted for a large number of home buyers, while the investors outlook indicates a superior return from the property asset class when compared to other investment vehicles. These circumstances will put extra weight to the housing demand and as a result propel prices to rise.

In reality, low interest rate can be a double edged sword. As the inflated demand drives prices to grow, this will eventually raise concern on the housing bearing and negate the initial positive market opinion on the affordability level.

2. Employment Levels

High unemployment rate is usually a fair reflection of the poor state of its economic climate. Consumers begin to lose confidence in their investments including property investments, although this normally occurs at a latter stage of deprived economic condition. The real estate market is gradually transformed into a buyer's market where there are more sellers than buyers, in other words, a situation in which supply exceeds demand. The lack of housing demand is going to apply pressure on the property value and more often than not is pushing prices to drop.

3. Population Growth

The invariable size of land available for development has to withstand the constantly rising population level particularly in metropolitan areas. The increase in population figures has a tendency to fuel market demand. In some cases it will trigger a rezoning of land as a means for building a higher density dwelling to accommodate for the population growth. This leads to land value in a newly zoned area to skyrocket and ignites the market value of every single property that is situated within the locality.

We will continue our discussion and analysis on this subject in the next article.

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