Real estate investors and customers research the real estate market as a means to establish long-term wealth. Successful home buyers have the ability to examine economic information and forecast real estate trends. From that point, investors can elect to buy, sell or lease out land accordingly. The housing market is extremely localized, and monitors the housing supply versus demand dynamics of a particular neighborhood. On the national level, prevailing interest rates significantly influence fluctuations in property values total.
Comparable to all asset values, real estate prices are usually ruled by demand and supply. Low supply and higher demand for housing translate into higher real estate values. Alternately, increasing distribution combined with weak demand lead to declines for housing prices. For all these reasons, downtown neighborhoods often feature higher appreciation potential than outlying suburbs and rural locations. In downtown neighborhoods, the limited land area limits the supply of commercial and residential real estate. Furthermore, downtown segments are usually facilities for job creation, which enhances demand for real estate. Distressed neighborhoods which are associated with higher crime rates and unemployment suffer from poor property values. Real estate demand falls as residents leave these neighborhoods for better opportunities elsewhere. Aggressive investors can buy cheap real estate in distressed neighborhoods, and turn massive profits when the surrounding area is revitalized.
Aside from local supply and demand for real estate, the distinct features of each property ascertain individual valuations. Sellers demand higher prices as reimbursement for greater distance and aesthetic features like hardwood flooring, stainless appliances and bay windows. Investors are also more likely to pay top dollar for real estate conveniences which produce higher rental income.
Prevailing interest rates influence the mortgage market and real estate prices. Low mortgage rates improve access to funding and support higher property demand. Alternately, higher mortgage rates generally cause prices to collapse, as prospective home buyers are thwarted by unaffordable housing expenses. Investor demand for real estate additionally decreases, because fixed income assets, like certificates of deposit, now offer more competitive returns.
Seasoned real estate investors vary their strategy according to the financial cycle of expansion, recovery and recession. In recession, value-conscious investors exploit opportunities to buy real estate. As real estate values improve with the market, investors can sell off their properties for high prices, or maintain their holdings as leases.
Property values within a particular city may disconnect from national real estate trends because of extenuating circumstances. As stated by the Case-Shiller Index, real estate prices in Detroit have fallen by 31 percent between January 2000 and May 2010. Detroit failed to take part in the early 2000s real estate boom, due to its fighting automobile industry. Locally, local property values might crash if a single large employer files for bankruptcy.