Real estate depends on population growth and rate of employment this creates a demand in real estate and thus a rise in prices.If the economy is negatively affected personal income of individuals decreases then demand in the real estate market goes down.
Demand for real estate is driven by population growth, personal income, employment rates, interest rates, and access to capital. The profitability of individual companies depends on property values and demand, which are both impacted by general economic conditions. Real estate companies also rely on the supply of investment capital. Large companies have competitive advantages based on their financial resources and broad geographic reach. Small companies can compete effectively by focusing on local or regional markets. The US industry is highly fragmented: the top 50 companies account for about 20% of revenue.
Having an increase in the buildings construction means a reduction in real estate prices.The reason for this is to attract customers.Low demand makes prices go down.
The real estate industry is a big business generating billions of dollars in revenue annually, and there are ample opportunities for entrepreneurs to turn a profit. Last year there were approximately 210,000 companies operating in the residential brokerage and management field, which generated $200 billion in revenue; there were 35,000 companies operating in the commercial brokerage and management field, generating $35 billion in revenue.
Real Estate Industry Background
Real estate is a cyclical industry, reacting to macroeconomic trends such as interest rates, population growth, and economic strength. Real estate soared in the post-World War II economic boom of the 1950s, sank in the inflation-riddled 1970s, rose again in the early 1980s until the depression at the end of that decade, and was prosperous again by the end of the century. Low interest rates in the mid-2000s allowed residential real estate to boom even when the economy was slow – until the mortgage crisis hit, and prices collapsed.
However, despite what is happening with the greater economy and real estate prices in general, the real estate industry offers diverse opportunities for the entrepreneur, including some hedges against these trends when they’re moving in the wrong direction!
The real estate industry consists of three primary fields: brokerages, leasing, and management.
Real Estate Industry Risks
Before considering an investment in any industry, it’s best to be aware of the risks. In the real estate industry these include (but of course are not limited to!) the following:
- Macroeconomic factors beyond the control of the business owner, such as downturns in the local or national economy
- Changing demand – a location once coveted can change quickly and properties can become less desirable. Of course, the reverse is also true – skilled selection of properties can reap profits in up and coming areas.
- Increased supply – building of new properties, and/or newly for sale properties in the area can drive rental or property prices down as well.
- Changing priorities or requirements for building management companies, particularly for aging properties. For instance, indoor air quality liability can be a serious legal issue, as can required removal of mold growth.
Real Estate Industry Opportunity
More than ninety percent of people use the internet before purchasing real estate, and brokers have embraced online marketing with pictures of properties and virtual tours in order to prime their potential customers. Better educated purchasers, while potentially more discerning, can also speed up the sales cycle by knowing what they want and need.
While there are fears that this will eventually eliminate the need for brokers all together, it’s unlikely to happen anytime soon. There is an expertise and skill to correctly marketing and showing a property – and it takes a lot of time. Property owners, particularly homeowners, can not dedicate the time to sell a home on their own, even with online tools smoothing out the process.