In this blog I want to take you with me on a journey where we find out what the real estate market really is about and how it works.
We start simple, the real estate market works just like every other market.
It follows the laws of supply and demand, so when supply is greater than demand, prices fall. When supply is less than demand, prices rice because of scarcity. There are however some factors that are crucial in the real estate market. Think about seasonality, durability and geographically.
So, first of all, how do we define real estate?
Real estate is property that consists of the land, the buildings on it as well as any natural resources. Think about water or farmland that’s on the same property as the building.
Basically, there are four types of real estate:
- Residential
- Commercial
- Industrial
- Land
Residential properties include buildings that people use for domestic residence.
Examples: townhouses, vacation rentals, family-homes etc.
Commercial properties are used to produce income/money. It is about the distribution of money.
Examples: stores, offices, hotels, services etc.
Industrial properties are mainly used for manufacturing and is about the contribution of goods.
Examples: factories, warehouses and research centers.
Land properties include few or no structures.
Examples: farming land, ranches, vacant land etc.
Buying and selling these properties happens on the real estate market, this is the collective name for all properties available for sale in a specific area.
We see very often that real estate markets can be very small, specific and regional.
For example, a room in New York Centre is WAY more expensive than a room outside of the city.
There are a lot of factors that can affect the price of a house, usually this is regional.
Examples of these regional factors are:
- Income
- Job availability
- Accessibility to credit
- Land constraints
- Transportation
- Exposure to extreme weather
- Retirees
- New constructions
Of course, there are factors that affect the national or even global market.
Examples of these general factors are:
- Interest
- Inflation
- Taxes
- Social status
- Investment
What is so special about the real estate market?
Locality
Even though real estate is everywhere, prices can vary a lot, even locally. However, in contrast to, for example oil, these properties can’t be shipped to a place where it is less or more expensive. This bounds the real estate market to a physical place.
Seasonality
It is well-known that on average the summer is more lucrative for the real estate market, or at least we can say that there is less activity in the winter. This makes monthly figures hard to repair for companies active in the real estate market. However, this also opens the door to more opportunities.
Durability
In comparison to phones, or cars, is real estate very durable. This means that it is very useful to invest your money in as it is considered as safe.
I hope this was useful and interesting to read for you. Please leave a comment!
Next time we would go into more dept about how to make money on this market, see you!
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