How Do I Predict Housing Market Trends?

K. Kinsella

Residential homes like other types of assets can rise and fall in value over the course of time. Analysts use a variety of statistical information to try and predict housing market trends and this data includes recent price movements, new home construction and the factors such as supply and demand. Additionally, many people rely on mortgage financing when they buy homes which means that changes in the lending landscape can also have an impact on the direction of the housing market.

Analysts consider recent real estate data when predicting market trends.
Analysts consider recent real estate data when predicting market trends.

Investors and homeowners are wary of paying over-the-odds for residential property and people often study housing market trends so that they can avoid buying properties during so-called housing bubbles which occur when home prices become inflated. In many nations, both government agencies and private firms keep track of movements in the average home price. If home prices are rising at a faster rater than inflation and wages then the price hikes could be indicative of a housing bubble. Eventually, bubbles burst which means that housing prices suddenly drop so that home prices are more affordable. After a period of rapid growth, if home prices start to rise more slowly or even remain flat for a period of time, it could mean that prices are about to reset.

Reviewing data related to new home construction can help an individual predict housing market trends.
Reviewing data related to new home construction can help an individual predict housing market trends.

Analysts attempting to predict housing market trends often review data related to new home construction. During economic booms, construction firms increase the production of new homes and this may cause home prices to rise as renters take advantage of the opportunity to purchase new or custom-built properties. Construction data is usually looked at in terms of supply and demand. If the supply of new home begins to outstrip the demand for residential property than at some point prices will have to fall because market dynamics mean that prices cannot continue to rise if there are not enough buyers to purchase the available inventory.

Banks, mortgage firms and investment companies finance new home purchases by funding mortgages and other types of home loans. During periods of recession, mortgage defaults become more common and banks lose money when people fail to repay their loans. Additionally, consumer spending drops during recessions and this can result in lower levels of profit for banks and finance firms. Generally, banks curtail lending when revenue levels drop and this means that fewer homeowners can qualify for loans; before long, the supply of homes begins to outstrip the demand. Those attempting to predict housing market trends often look at the quarterly earnings reports from banks because when bank earnings drop, underwriting standards often tighten and this can cause home prices to fall.

During boom years, a large stock of new housing is built.
During boom years, a large stock of new housing is built.

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