Tip of the Month - October, 2021


Source: PropertyManagement & Managing Risk
By: Robert C. Kyle & Floyd M. Baird, RPA/SMA

General business cycles have an important impact on the value of real estate. A downturn in the general business economy will mean that fewer people can afford to buy real estate, which will decrease the demand for real estate in relation to the supply of real estate. And if the supply of real estate is excessive in relation to the demand for it, the price of real estate will decline. Of course, the opposite is also true.

Several factors affect the supply of and demand for real estate. The state of the national economy is an important factor because it affects employment rates, housing affordability, availability of credit and interest rates. Interest rates have a serious impact on the desirability of real estate as an investment.  As interest rates increase, many potential buyers are simply priced out of the market-real estate becomes too expensive because the required mortgage payments increase in relationship to the interest rates.

Local populations trends also affect the value of real estate.  A large influx of people into a community (because of increased job opportunities, for example) will cause the value of real estate to go up. A decrease in population will have the opposite effect.  The demographics of that population will also affect real estate values.  For example, an increase in retirement-age citizens will increase the value of certain types of properties
(retirement communities) while decreasing the values of other types of properties (large, high-maintenance single-family homes).

Local government actions also affect real estate values.  For instance, high property taxes or poor schools will probably decrease community real
estate values.

This web page was updated on 10/01/2021.