By: Tony Delisi | RE/MAX Unlimited Northwest
Prices are high and getting higher in for Sun City Homes in Huntley. What’s causing this price bubble and how long will it last? The answer may surprise you.
What Drives Sun City Homes Prices?
Two things that drive up prices in Sun City Huntley are the stock market and Chicago home values. Most people who buy Sun City homes are retiring and they sell their home in Chicago and surrounding area for big bucks and move out to Huntley. If their home is worth say $600,000, our homes seem to be bargains and demand is high for a better life at a lower cost. However, if things go wrong, their home values could fall and so will demand for Sun City Homes.
A second factor is the stock market. Many people use their investments in the markets to buy their Sun City home. If the market is doing well, so are Sun City homes. The markets are fragile and things could change almost overnight.
What Could Go Wrong?
A lot could end the bubble. We are coming into an election, so six months of both parties telling us things are terrible and going to get worse doesn’t make people feel like going out and buying homes. Also terrorist attacks can deflate the stock market and make people unwilling to make major commitments.
What Should You Do With Your Sun City Homes?
Get a local specialist like me to come out and evaluate your home. I think you’ll be pleasantly surprised at what the current value is. Then, I suggest you list your home while the market is strong as it may not last.
To find out more about the value of Sun City homes, call or text Tony Delisi at RE/MAX your Sun City specialist at 847-471-7177.
Here are more factors that affect real estate prices from Investopedia. http://www.investopedia.com/articles/mortages-real-estate/11/factors-affecting-real-estate-market.asp
Factors That Influence Real Estate
Demographics are the data that describes the composition of a population, such as age, race, gender, income, migration patterns and population growth. These statistics are an often overlooked but significant factor that affects how real estate is priced and what types of properties are in demand. Major shifts in the demographics of a nation can have a large impact on real estate trends for several decades.
For example, the baby boomers who were born between 1945 and 1964 are an example of a demographic trend with the potential to significantly influence the real estate market. The transition of these baby boomers to retirement is one of the more interesting generational trends in the last century, and the retirement of these baby boomers, which began back in 2010, is bound to be noticed in the market for decades to come. (For more on the baby-boomer trend, see Boomers: Twisting The Retirement Mindset.)There are numerous ways this type of demographic shift can affect the real estate market, but for an investor, some key questions to ask might be: i) How would this affect the demand for second homes in popular vacation areas as more people start to retire? Or ii) How would this affect the demand for larger homes if incomes are smaller and the children have all moved out? These and other questions can help investors narrow down the type and location of potentially desirable real estate investments long before the trend has started.
- Interest Rates
Interest rates also have a major impact on the real estate markets. Changes in interest rates can greatly influence a person’s ability to purchase a residential property. That is because as the interest rates fall, the cost to obtain a mortgage to buy a home decreases, which creates a higher demand for real estate, which pushes prices up. Conversely, as interest rates rise, the cost to obtain a mortgage increases, thus lowering demand and prices of real estate.
However, when looking at the impact of interest rates on an equity investment such as a real estate investment trust (REIT), rather than on residential real estate, the relationship can be thought of as similar to a bond’s relationship with interest rates. When interest rates decline, the value of a bond goes up because its coupon rate becomes more desirable, and when interest rates increase, the value of bonds decrease. Similarly, when the interest rate decreases in the market, REITs’ high yields become more attractive and their value goes up. When interest rates increase, the yield on an REIT becomes less attractive and it pushes their value down. (To learn more about these effects, see How Interest Rates Affect Property Values.)
Another key factor that affects the value of real estate is the overall health of the economy. This is generally measured by economic indicators such as the GDP, employment data, manufacturing activity, the prices of goods, etc. Broadly speaking, when the economy is sluggish, so is real estate.
However, the cyclicality of the economy can have varying effects on different types of real estate. For example, if an REIT has a larger percentage of its investments in hotels, they would typically be more affected by an economic downturn than an REIT that had invested in office buildings. Hotels are a form of property that is very sensitive to economic activity due to the type of lease structure inherent in the business. Renting a hotel room can be thought of as a form of short-term lease that can be easily avoided by hotel customers should the economy be doing poorly. On the other hand, office tenants generally have longer-term leases that can’t be changed in the middle of an economic downturn. Thus, although you should be aware of the part of the cycle the economy is in, you should also be cognizant of the real estate property’s sensitivity to the economic cycle.
Legislation is also another factor that can have a sizable impact on property demand and prices. Tax credits, deductions and subsidies are some of the ways the government can temporarily boost demand for real estate for as long as they are in place. Being aware of current government incentives can help you determine changes in supply and demand and identify potentially false trends. For example, in 2009, the U.S. government introduced a first-time homebuyer’s tax credit to homeowners in an attempt to jump-start home sales in a sluggish economy. According to the National Association of Realtors (NAR), this tax incentive alone led to 900,000 homebuyers to buy homes. This was quite a sizable increase, although temporary, and without knowing the increase was a result of the tax incentive, you may have ended up concluding that the demand for housing was going up based on other factors.
What’s the Best Investment?
The size and scale of the real estate market make it an attractive and lucrative market for many investors. Investors can invest directly in physical real estate or choose to invest indirectly through managed funds. Investing directly in real estate involves purchasing the residential or commercial property to use as an income-producing property or for resale at a future time. Indirect ways to invest in the real estate market include investing in real estate investment trusts (REITs), real estate exchange traded funds (ETFs), commingled real estate funds (CREFs) and infrastructure funds. Due to the higher liquidity available in the market, the lower transaction costs and lower capital requirements, average investors prefer to indirectly invest in real estate. (To learn more about the ways to profit from the housing market, read Simple Ways To Invest In Real Estate.)
The Bottom Line
This article introduced some of the higher-level factors that play a significant role in moving the real estate market, but there are also more complex parts that come in to play. And although some of these aforementioned factors suggest a clear-cut relationship between the factor and the market, in practice, the results can be very different. However, understanding the key factors that drive the real estate market is essential to performing a comprehensive evaluation of a potential investment.
Read more: 4 Key Factors That Drive The Real Estate Market | Investopedia http://www.investopedia.com/articles/mortages-real-estate/11/factors-affecting-real-estate-market.asp#ixzz4D4stV9Er
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