Buying and selling real estate is often a long-term investment, which makes it an important part of the financial portfolio for many families. However, the industry is a highly complex market, with shifts that can happen overnight and peaks and valleys that can make seasoned veterans curl up in a fetal position. Understanding the trends and patterns can help you better guide your clients through the process.
Durability – Real estate is durable, lasting for decades and even centuries. This longevity means that real estate markets can be modelled as a stock/flow market, with the vast majority of the supply consisting of existing buildings and only a small proportion coming from new construction. The rate of deterioration or renovation, the rate at which existing properties are sold and the flow of new development determine the overall supply.
Locational immobility – This means that consumers can’t just take their houses with them when they move – unlike, say, pizza, which can be moved in the same way. This requires market adjustment to occur through a different mechanism, with people moving to areas that offer the goods they want (and away from those that don’t).
Seasonality – Real estate activity varies by season, and can be affected by weather conditions. As a result, it’s often necessary to “seasonally adjust” the figures to compare them over time. This can be done by dividing the figures by the number of months in a year, or by comparing them to the same period last year.
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