The real estate industry is a huge market that depends on a number of factors that determine price appreciation. Knowing these factors can help you when buying your next home or investment property. Whether you are buying now or in the future, it is best to buy when prices are dropping so that if you do decide to sell later, the property will have increased in value and you will get a better deal.
To get a better idea of when real estate prices will fall, check out the list below.
If interest rates rise
One of the determining factors for price declines is when interest rates rise. Considering that the best time for buyers to invest in a home is when mortgage rates are low and therefore it is easier to buy, when interest rates rise the number of buyers drops.
In real estate, even if the property is within a buyer's budget, if the monthly payments are not within budget, the buyer will not proceed with the transaction. Some homes are currently in foreclosure because previous buyers cannot afford to continue making the monthly payments.
This reduces the number of potential buyers during this time and the property will remain on the market for a while until it sells for the same price or the price is lowered to find a buyer. The longer a property is on the list, the more likely it is to lose value, making this a good time to buy for investors with the right funds.
When property supply exceeds demand
Rising interest rates will ultimately result in more real estate properties coming onto the market. This will create a larger gap between supply and demand in the market, leading to a fall in real estate prices. However, even if prices fall, demand is unlikely to increase if other factors such as rising interest rates, unemployment, etc. continue to persist.
On the other hand, if you are in a financial position to invest in real estate during this time, you can take advantage of the fact that there are plenty of options available to you, allowing you to look at these properties in detail and determine which one best suits your needs and will provide you with the most value in the long run.
If you are having difficulty obtaining a mortgage
Banks and other financial institutions are on the front lines adapting to the financial conditions of the economy, meaning that when the current economy suffers from extreme factors like the pandemic, banks will approve fewer loans and tighten approval rates, thereby reducing their own risk.
This causes buyers who are denied financing to abandon other avenues of home buying, resulting in a decline in demand. Ultimately, prices fall as there are more homes on the market and not enough buyers.
If the unemployment rate rises
One of the biggest indicators that real estate values are falling is the rising unemployment rate. Given that capital is scarce, there will be fewer potential buyers for residential and commercial real estate. The drop in demand and prices is not short-term and it will take some time for the economy to recover.
However, what this means for prospective buyers and investors is that property prices will remain low for a sustained period of time, allowing them to take their time to choose the property they want to invest in, do their market research diligently and compare property market prices in Cambodia.
When a natural disaster occurs
Natural disasters are one of the most unpredictable factors in the real estate industry. However, depending on the scale of the natural disaster, they can have an immediate and devastating impact on market prices. For example, when a major hurricane or flood occurs in a particular area, the extensive damage caused to properties in that area takes some time to recover. This can be a financial blow to real estate developers and homeowners who need to repair their properties quickly.
Additionally, flood-damaged properties are less attractive to most buyers, causing demand to drop and values to plummet.
If a foreclosure or short sale occurs
While foreclosures are sometimes unavoidable, such as when unforeseen circumstances affect a buyer's ability to repay their mortgage, a consistent occurrence of foreclosures in a particular area will certainly drive down property values in that area. Additionally, a large number of short sales will likewise drive down property prices.
For buyers, this means you need to do your market research diligently and find areas with a lot of foreclosures and short sales to buy a property at a lower price. Furthermore, if you are having trouble finding a good property listing, leave it to us. As one of the leading real estate companies in Cambodia, we have a team of dedicated experts in this field and we will ensure that you can buy your desired home easier and smoother.