Four Factors That Influence Home Sales

Darwin Horan, a Colorado-based builder and developer, has constructed and sold more than 15,000 single- and multifamily new homes. Throughout the process, Darwin Horan has closely watched the economic factors that influence the real estate market.

One major driver of housing sales is demographics, the make-up of the population as a whole. Right now, baby boomers (those born from 1945 to 1964) are beginning to retire. This raises the question of how many retirees will buy second homes for vacations. Many retiring people own large homes. How many will sell those homes for smaller ones as their children move out?

Interest rates also have a great influence on home sales. Low interest rates make obtaining mortgages easier, and as more people qualify, they go into the real estate market, looking to buy. This higher demand drives home prices up. As prices rise, sales tend to flatten. Similarly, if interest rates rise, demand and prices drop.

The general condition of the economy also affects demand and prices. Influencers such as employment, gross domestic product, and the cost of goods all have an impact. When these indicators are down, so are real estate values.

Government policies also affect housing sales. For example, in 2009, nearly a million first-time home buyers took advantage of a federal income tax credit. This was a significant boost; however, its effect was temporary, lasting only as long as the federal intervention did.