The Drivers of Real Estate Prices

Abstract

Real estate is among the most important elements of an economy and one of the greatest determinants of a country’s GDP contributing to the national economy since its being influenced by a myriad of factors that span economic, social, and political realms. Housing accounts for a huge percentage of many countries' wealth, especially in the US. Data issued by the FRED shows that the U.S. homeownership rate was 66% in the first ¼ of 2023 illustrating the level of significance real estate has (2023). The market for real estate is an important part of the global economy, acting as a measuring instrument for economic health and offering a considerable channel for investment. Factors such as location, supply and demand, economic indications, government policies, demographics, and external factors are significantly important in dictating of real estate pricing, as these factors collectively shape the dynamic landscape of the market. This paper aims to explore and analyze the key determinants that have a substantial impact on real estate values, giving useful information for decision-making and strategic planning. Understanding the dynamics of real estate is crucial for investors, governments, and industry stakeholders looking to manage and capitalize on real estate's ever-changing market. In a real estate analysis of the market, the key drivers of real estate prices are analyzed together with their trends. Over the past few decades, different trends and projectiles have been seen in the real estate market – with busts, and booms, real estate prices have continued to fluctuate year in year out thanks to the macroeconomic effects (Favilukis et al., 2017). The United States experienced its highest boom in history during the 1996 to 2006 where prices of houses rose up. This was due to multiple factors including interest rates, and policies among others.