Are Property Prices Going Up Or Down?

Are Property Prices Going Up Or Down?

It’s the question on every buyer and seller’s mind: What’s happening to the market?

As a real estate agent, I tell everyone who asks me very simply, “I don’t know.” In truth, if I had a crystal ball that good, I’d be on a beach in Fiji. However, I do know what forces affect prices—I'll share them with you, so you can draw your own conclusions.

Factor #1: Employment

It’s one of the first rules of real estate: housing follows jobs. Move a factory into a small town, and housing prices rise. Conversely, when jobs go away, housing prices drop. (One easy place to see this is in Michigan, which has been hit hard by the current recession.) The national agency that tracks jobs, job growth and unemployment is the Bureau of Labor Statistics, or you can just Google your local unemployment rate. When it starts dropping, that’s a sign that housing prices may be set to jump.

Factor #2: Inventory

What’s important here isn’t the absolute number of listings on the market, but how long it would take them all to sell at the current rate, which is called the absorption rate. If there are 72 listings on the market, and they’re selling at the rate of six per month, then there’s a year’s worth of inventory on the market. Usually six months’ or so of inventory is considered a balanced market, with less inventory tipping the scale towards sellers and more inventory tipping the scale towards buyers. But even more important, watching inventory grow or shrink will often give you a clue at future prices. Where do you get inventory statistics? Most local realtors or realtor boards (for example, “Long Island Board of Realtors”) will give you inventory statistics if you ask for them. To find your local board, go to the National Association of Realtors website and hit the tab that says, “directories.”

Factor #3: Interest Rates

We’re at historically low interest rates now. I bought a year ago and got a 4.875% rate; just yesterday on a chat board I saw someone asking about 4.25%! So it’s tough to imagine that they’d go much lower. When rates rise, though, economists say that housing prices generally fall. (Note that this is a long-term effect, because in the short-term, an interest-rate bump usually scares buyers who have been sitting on the sidelines into jumping into the market). You can get an idea about rate forecasts from reading general economic news. And then there are a number of websites that specifically track mortgage rates. One of my faves is bankrate.com, which even lets you track rates by your zip code.

Tell us in the comments: Who do you trust for news of the housing market?

Learnvest

Financial planning made simple.

Get your free financial assessment.

Related Tags

Get the latest in your inbox.

Subscription failed!

You're Now Subscribed!