How financial markets can impact real estate

Written by in Selling on December 16, 2016

How financial markets can impact real estate

There are many impacts on home prices across Australia and indeed the world. There are obvious impacts such as basic supply and demand but financial markets can impact real estate in many ways.

People sell their homes for numerous reasons, more often than not it is as a result of a professional motivation such as being relocated or a personal decision to experience a new part of the city or the world. Some people sell homes to upgrade or upscale and some will sell their homes to take advantage of a rising housing market.

Whatever the reason for your house sale, you will be at the whim of a housing market that can often be volatile. As an example, house prices in Darwin have just been reported as dropping by 2.4% in the last quarter which leaves them at a 6.5% drop in the last year. That figure compared with somewhere like Melbourne which has seen an 8.2% increase in the last quarter alone go to show you just how quickly and by how much, prices can move.

Interest Rates

Interest rates have a hugely profound effect on property prices. The lower the interest rate, the cheaper the cost of buying a mortgage. This means that a mortgage is far more accessible to far more people and demand for real estate goes up. When the demand for real estate rises, so too will the price of the properties and visa-versa. There are many political and economic events which alter the interest rate and if you are looking to sell then it is worth keeping your eye on them to put your house on the market at the right time.  

General Economy

Aside from supply and demand, all aspects of the economy will affect the price of property. This could be the forex market, inflation, GDP and even prices of goods and services or employment rates. The real estate price often reflects the state of a country’s financial health. Therefore the best time to sell your property can be when the economy is thriving. Financial markets and real estate prices are rely on a system of financial trust. This requires a faith in the economy that there will be people working in it and producing and spending money, trust that the country is exporting goods at great prices and trust that financial markets are as secure as forecasts suggest. These high level economic details largely affect the housing market and your ability to sell your home at a profit.

Governmental Impact

The government also impact the financial markets and the price of real estate through the benefits and subsidies which it gives out. This could range from low income support to subsidized rental costs or tax credits and deductions. A government’s policies alter the face of the financial markets which consequently impacts poverty and rental prices. Tax incentives which the government can offer will encourage more people to buy houses and once again, going back to the principles of supply and demand, these alters the property prices.