Factors Affecting Demand for Housing

Written by brian cruze
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Factors Affecting Demand for Housing
Real estate prices depend on the country's economy and consumer demand for housing. (Thinkstock Images/Comstock/Getty Images)

In 2007, BBC News published an article titled "Housing Meltdown Hits U.S. Economy." A sudden tightening of credit was one of the factors that caused property prices to crash. The collapsed U.S. housing market was suspected as the root of the economic recession that hit the American economy. Several years later, foreclosure figures were dropping, but the impact on the housing market has still lingered.

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Demographic Shifts

According to the 2010 report "Housing in America: The Next Decade," in the coming decades, reurbanization will take place, with suburbs across the country being redeveloped. Demographic shifts will play a role in housing demand in America. Of the roughly 26 million older baby boomers, aged 55 to 64, many are stuck in suburban properties -- owing more in mortgage payments than properties are worth. Those who sold their properties have already moved, choosing homes that bring them closer to family. The younger baby boomers, aged 46 to 54, in their peak earning years, have little hope of selling their suburban homes.


The late-2000s recession and housing market that folded on itself has shaken the confidence of Generation Y -- late teens to early 30s -- in the real estate market. Watching people lose their homes to foreclosure has lessened the allure of buying real estate. It is anticipated that Generation Yers will become renters rather than homeowners by choice. Generation Y's choice of residence is another factor that can affect housing demand as they prefer urban settings rather than suburban ones.

Consumer Confidence

Consumer confidence is important to the housing sector and can affect the increase or decrease in property demand. When expectations about the performance of the economy decline, people tend to become less optimistic about buying property. Improved consumer confidence in a stable economic environment and prosperous job market can lead to enhanced consumer confidence -- raising the number of property buyers. Factors that affect consumer confidence include expectations of future employment, current level of interest rates, expectations of future interest rate movements, changes in job security perception, anticipated changes in taxation and changes in household wealth including property value.

Job Market Stability

According to the 2010 "Housing Opportunity Pulse Survey," on average, as many as eight out of 10 respondents believed buying a property was a good financial decision. They felt this way despite the ongoing economic situation and the housing market. However, the respondents believed job insecurity, lack of jobs and slow growth of the job market were the main obstacles homeowners face. The respondents' believed the recession and loss of jobs gave rise to the foreclosure problem.

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