Forces that affect Real Estate Prices
The price of real estate is greatly influenced by the supply and
demand of the market. In the 40’s and 50’s, a real estate buyer has
to put up 20% of the selling price as down payment. This put him in
a situation where he has a solid investment on the property; but
caused him some personal sacrifices to raise the amount. This
minimized his speculative moves on the property that stabilized
real estate prices into its real values during those times.
But during the recent times, liberal credit has eased the manner of owning a property. With just 5% or no-down payment schemes, one could buy a house. This situation increased the demand of houses for sale that caused their price to spiral upward artificially. This is aggravated by the Sub-Prime housing loans given to unqualified borrowers. These easy loans were induced by the avalanche of excess funds, some coming from foreign sources. These also tempted many unqualified borrowers to speculate in buy and sell of houses, which further pushed the prices to an artificial record high.
These abnormal ways caused the real estate price bubble to burst, causing prices to settle at their true worth. These occurred when due dates of these Sub-Prime loans came; and the speculators who have no funds to support their ventures defaulted on their amortizations. These caused world-wide economic crises, considering that some of the funds came from foreign sources.
Though the real estate prices all over the world were affected due to lower demand, and also, due to lack of funds as a result of the economic crises; the real estate prices bubble burst occurred most severely in USA; because it was here, where most of the speculative real estate ventures occurred. These caused the house prices to spiral down, even lower than their true value. Suddenly, there is an oversupply of houses for sale.
So, this is the time for astute investors to buy houses, while prices are down at low artificial level.