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10 Factors That Impact Future Real Estate Prices

February 6, 2014

Seattle, WA -

10 Factors That Impact Future Real Estate Prices

Is now a good time to buy?  Is now a good time to sell?  These are two of the most common questions real estate professionals are asked and for good reason.  People want to know: should I be buying or selling now or, is it better to wait a year or so and look into it again?  Good real estate brokers get the most out of each transaction their clients are involved in and great agents can accurately determine which way "the wind is blowing" (ie, are sellers or buyers starting to get the upper-hand). Predicting home prices one to two years out however, is a much different endeavor and that's what this article is about.

You can put fifty real estate experts, economists, finance professors and politicians into a room to hash out a real estate price predication for a given market and there will still be a high degree of uncertainty in their prediction. Real estate prices are driven by thousands of factors at a world, national, state and local level and a surprise on any one of these factors can throw an otherwise logical price prediction way off the mark.

So what does matter and what questions should you be asking yourself about the future of Seattle real estate prices?

To understand real estate pricing on a longer-term basis, you have to draw a distinction between relative and absolute value measures.  For example:  A well informed Seattle home buyer shops around, narrows down their buying decision to two houses and determines that Home A is a better value than Home B and will buy Home A at the best price they can negotiate.  This is a relative value measure and makes sense for buying (or appraising value) in the market as of right now. However, if that same home Buyer was treating their purchase as more of an investment than a place to live (like in the case of a rental property), they also have to determine if home A is a good value relative to what might become available in the future.  Put another way, they need to know if home A is a good value in absolute terms, not just relative to home B.

Thinking in terms of absolute value, rather than relative prices, helps investors avoid buying anything when asset prices (including homes) are in price bubble and helps them recognize when the market is offering good deals across the board.

The factors listed below are factors that would lead you to believe the the housing market is going to appreciate faster than normal.  They are a mix of absolute value measure and measures that, from a historical standpoint are favorable to housing prices.

To each statement, you'd consider where you either "Disagree", "Are Neutral" or "Agree".  If you  "Agree" with the majority of these statements, prices are likely to rise faster than normal.  If you "Disagree" with most of the below statements, the market is showing signs of weakness.

Housing Prices Go Up When:

  1. Interest rates on home loans were high but are moving lower.
  2. Home loans were hard to get but are getting easier.
  3. The monthly cost of owning a home, after a standard down-payment, is comparable to the monthly cost of renting a similar property in the area.
  4. The home-price-to-income-ratio is historically low: people have strong incomes compared to home prices.
  5. Employment rates and average incomes were weak but are strengthening.
  6. Employers were conservative but are growing confident and investing.
  7. The number of employers coming to the area and the general population size is increasing.
  8. Local governments are building infrastructure fast enough to keep up with growth.
  9. Additional housing supply is hard to create and shows no signs of becoming easier.
  10. Government policy (taxes break, subsidies) increasingly favors home ownership.

These ten large scale factors ultimately determine the real estate supply and demand relationship in a given area. You'll notice that most of them involve moving from a "weak" position to a "strong" position, these inflections are what make markets move in material ways. At some time in the future, we'll score each of these factors for the Seattle market and draw some conclusions. Until then, simply having an understanding of what these factors are and thinking about them in historical norms will give you the ability to gauge the real estate market's future as accurately as anyone. 

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