How the Economy Affects Property Prices

The state of the economy affects property for sale prices.  Economic conditions can dictate the selling price of a house. There are a number of reasons cited for the seeming correlation between the two.

One reason is employment.  When the economy is doing favorably well, a huge number of people have stable employment.  People who are gainfully employed feel confident of their purchasing power.  They know they can afford to pay monthly premium for the house they want to buy.

Unemployment, on the other hand, produces the opposite effect.  When a person does not have a stable job, he is wary about buying a house.  Also, a steady employment is a requirement for mortgage application.  Without a job, it will be impossible for a person to get a mortgage.

Another reason is demand.  A slow-performing economy can cause a fluctuation or fall of demand for housing.  An unstable economy can make the person think twice about making a huge investment such as buying an apartment for sale.  He needs to ascertain first that he has the money to spend for necessities in the next few months or in the event that he loses his job.  Economic uncertainty can curb spending due to fear of economic loss.

During an economic crisis, selling auction property will be difficult.  A property for sale such as bungalow or condominium will not be attractive to people.  They are more concern about buying or paying for the necessities such as electricity bills, food and rent.

The demand for a house for rent may increase in an economic recession because most people would rather rent than buy a house.  This is one of the reasons why a property for rent becomes popular during recession like a low-cost condominium. A cheap apartment for rent is a welcome news for cash strapped buyers.

The third reason why economy affects property prices is the foreign investments coming in.  When a country has a number of foreign investors, understandably, there will be a growing demand for properties.  As the demand grows, the house for sale prices also goes up. Foreign investors need to invest in properties such as a house for sale to be able to operate. More foreign investors mean more people finding employment.  People can now afford to pay for an apartment for rent or buy an apartment for sale.

A fourth reason why economy can affect the price of the property is the crime rate.  A faltering economy will most likely see a rise in crime rates such as robbery and killings.  A place that is high in crime rate will not look desirable to the property buyers.  Even if the property being sold is an auction property, people will still not be motivated to buy it due to fear of being targeted by criminals.  This will cause a decrease in demand for housing such as a bungalow in that specific area. There is also probably a decrease in demand for property for rent or house for rent in that area as well.

All these economic factors can affect the price of the property.  A well-performing economy can induce increase in demand for housing just as a poor economy can discourage purchase of houses. Economic growth can help spur real estate selling and buying.  It can help boost confidence in a potential buyer so he will commit to a long term mortgage associated with property purchase.