May 25, 2024

1. Economic Growth

Housing demand is dependent on income. With higher economic growth and increased income, people can be expected to spend more on housing. This, in turn, will increase the demand for housing and drive housing prices up.

Similarly, in a recession, falling incomes will lower people’s purchasing power, resulting in lower housing demand and housing prices.

2. Unemployment

Unemployment is not independent of economic growth and is related to economic growth. When unemployment rises, fewer people will demand housing. In other words, unemployment will decrease demand and cause housing prices to decrease.

Of course, even if there is no actual unemployment, the worry and fear of being unemployed in bad economic conditions will also have a deterrent effect on people entering the real estate market.

3. Interest Rates

Interest rates affect the cost of home loans. High interest rates, which increase housing loan repayment costs, will cause housing demand and prices to fall. In addition, high interest rates make renting more attractive than buying.

On the other hand, the increase in interest rates may cause people with savings to turn to other investment areas instead of housing, which again affects housing demand and prices.

4. Consumer Confidence

Consumer confidence is important for determining whether people are willing to take risks. Especially in this sense, expectations for the housing market should be taken into account. Because if people are worried that house prices may drop, they will want to delay their purchase plans. Low consumer confidence will cause a lowering effect on housing demand and prices.

5. Supply

The shortage of supply, that is, the low supply, will increase the housing prices. On the contrary, the excess supply will bring down the housing prices. Housing supply is dependent on existing stocks and new housing developments.

For example, it is known that 700,000 new homes were built in Ireland between 1996 and 2006. When the real estate market in the country collapsed, there was a huge oversupply in the market. Housing prices fell as supply exceeded demand.

In contrast, housing supply lagged behind demand in the UK during the same period. Due to the shortage of supply, house prices in the UK have not fallen as much as they have in Ireland.

6. Credit Availability

The increase in credit availability will increase housing demand and housing prices. The softening of credit conditions by banks increases the availability of credit. On the other hand, the tightening of credit conditions by banks reduces the availability of credit, and in such a case, both demand and housing prices can be expected to decline.

7. Immigration and Demography

Populations increase in certain cities as immigration levels increase, and more people means more demand. For example, according to the research of London-based Knight Frank Research, Izmir is among the cities where housing prices have increased the most due to immigration from Istanbul.

Another factor is demographic changes. For example, rising divorce rates increase the number of single people living alone, which in turn increases the demand for housing.

8. Geographical Factors

Many housing markets are heavily influenced by geographic factors. For example, house prices may decrease across a country, but in some regions (eg Istanbul, Nişantaşı or İzmir, Sahilevleri ) prices may still rise. In some regions, this may affect market trends as demand is high and supply is limited.

However, housing near good schools or on a good transport route may have a higher premium than other areas.

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