You know the old saying that real estate prices are local. What is happening in one area of the country has no impact on another area and so forth. While overall this idea rings true, there are some exceptions to the saying. In fact, there are some common factors that drive the real estate market, no matter your location.

What are these factors? In this post I’ll look at the 5 factors that drive the real estate market and why they affect home prices throughout the country.

1. Supply And Demand

Supply and demand is an important factor of the real estate market. While this factor can be local, in terms of a lack of supply in a city so the demand for housing is high, it can be national too.

For example, if lumber prices rise or tariffs are introduced on the material to build a house, this is going to affect the pricing of new homes. If prices go too high, demand falls and then builder stop supplying new homes to the market.

2. Interest Rates

As a whole, interest rates drive the real estate market. When interest rates are low, people tend to be more likely to buy a house. This is because they can borrow money more cheaply.

However, as interest rates rise, there is not an immediate slowing to the real estate market. This is because interest rates tend to move slowly, so buyers have time to lock in rates.

With that said, in times of very high interest rates, you will see a slow-down in the real estate market at buyers simply cannot afford to borrow money at such a high rate.

3. The Economy

A bad economy is an obvious detriment to the real estate market. Just look at the housing collapse in 2008 as a prime example. People were losing their jobs and struggling to make ends meet. When this is happening, the last thing you are thinking about is shelling out thousands for a new home.

And even if you didn’t lose your job, borrowing a couple hundred thousand dollars wasn’t interesting either. You were too worried you might lose your job as well and as a result, would rather build up your savings account.