8 Main Factors Affecting House Prices

Why are housing prices rising or falling? Here are the main factors that affect and determine housing prices.

There are a number of key factors that affect and determine housing prices. The most important of these factors are based on economic data and population density.

How exactly are house prices determined and what factors are affected by house prices? Here are the eight most important factors that affect housing prices.

Economic Growth
Demand for housing depends on income. With higher economic growth and increased income, people can be expected to spend more on housing. This will increase the demand for housing and raise housing prices.

Similarly, in the recession, falling incomes will reduce people’s purchasing power, which will result in lower housing demand and house prices.

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

Of course, even if there is not actually unemployment, the fear and fear of being unemployed in poor economic conditions will also have a deterrent effect on people entering the real estate market.

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

On the other hand, the increase in interest rates may lead to saving people to move to other investment areas instead of housing, which again affects housing demand and prices.

Consumer Confidence
Consumer confidence is important to determine whether people want to take risks. In particular, expectations regarding the housing market should be taken into consideration. Because if people worry that housing prices may fall, they will want to postpone their purchase plans. Low consumer confidence will lead to lower housing demand and prices.

A shortage of supply, that is, low supply, will raise housing prices. On the contrary, surplus supply will bring down housing prices. The supply of housing depends on existing stocks and new housing construction.

For example, between 1996 and 2006, 700,000 new homes were built in Ireland. When the real estate market collapsed in the country, a large supply surplus occurred in the market. Housing prices have fallen as supply has exceeded demand.

In contrast, housing supply in the UK fell short of demand. Due to supply shortages, housing prices in the UK did not fall as much as in Ireland.

Credit Availability
The increase in credit availability will increase housing demand and house prices. Softening the loan terms of banks increases the availability of loans. In contrast, tightening the credit conditions of banks reduces credit availability and in this case both demand and housing prices can be expected to decline.

Migration and Demography
As immigration levels increase, so does the population in certain cities, and more people mean more demand. For example, according to the London-based Knight Frank Research study, Izmir is among the cities where housing prices have increased the most due to the immigration from Istanbul.

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

Geographical Factors
Many housing markets are heavily influenced by geographical factors. For example, housing prices may fall across a country, but in some regions (eg Istanbul, Nisantasi or Izmir, Sahilevleri) there may still be rising prices. In some regions, this may affect market trends as demand is high and supply is limited.