Factors That Affect the Housing Market

Published: 01/17/2023

Economic Factors That Affect the Housing Market

The housing market is a complex ecosystem affected by many factors. These external factors can significantly impact the market, both positive and negative.

Interest Rates

Interest rates significantly affect the housing market because buyers are more likely to buy homes when interest rates are low. In addition, low-interest rates make it easier for buyers to qualify for mortgages, which can encourage more people to purchase homes.

The Federal Reserve usually lowers interest rates to stimulate the economy by encouraging consumers to spend money and businesses to invest. However, suppose interest rates fall too low and stay there for too long. In that case, borrowers could take on too much debt and over-leverage themselves to purchase homes or other assets at prices higher than what they would be worth during normal economic conditions. As a result, these borrowers may face problems when interest rates start rising again.

Source: FRED

Active Inventory

The number of active listings on the market indicates how well home prices will hold up in the future. A healthy market has enough supply to meet demand but not so much that it drives down prices. If too few homes are sold, buyers will compete for the available inventory and drive up prices. Conversely, if fewer homes are sold, sellers will compete for buyers and drive down prices.

Lumber Prices

The price of lumber is a significant component of the cost of building a house. When lumber prices go up, so do housing prices.

Several factors, including the cost of labor and materials, the size and type of lumber, and the availability of land suitable for logging determines the price of lumber. The demand for lumber also affects its price. In general, as demand increases, so does the price.

The price of lumber fluctuates with changes in supply and demand. When there is an increase in demand but not enough supply to meet it, the price goes up. When there is an increase in supply but not enough demand to meet it, the price goes down.

Lumber prices can also be affected by laws governing logging practices or environmental concerns over how trees are harvested or processed into finished products like boards and planks.

NASDAQ Lumber Prices

New Housing Starts

The number of privately owned housing starts is a key indicator of the strength and direction of the nation's housing market. The Census Bureau's monthly reports on new residential construction provide an early glimpse into how much home building is taking place across the country. The data also provides insight into trends in the economy, including job creation and consumer confidence, as well as demographic shifts such as population growth or migration patterns.

The number of private homes started in any given month represents a small portion of homes built during that time period since single-family homes represent only about one-third of all housing starts (multifamily units make up the remainder).

Employment-Population Ratio

The Organisation for Economic Co-operation and Development defines the employment rate as the employment-to-population ratio. This is a statistical ratio that measures the proportion of a country's working age population that is employed. This includes people that have stopped looking for work.

In other words, it's the total number of people with jobs divided by the total number of people in the country who are old enough to work or searching for a job.

Income Per Capita

Housing prices may increase as incomes rise, but they can also fall when there are too many homes for sale and insufficient buyers. The availability of affordable housing is an essential factor in economic growth, especially for low-income families looking to get into homeownership.

The income per capita is one way to measure how well the economy is doing.

Foreclosure Rate

Foreclosure rates are a good indicator of how well the housing market is doing. The foreclosure rate measures the number of homes in foreclosure proceedings, divided by the total number of homes currently owned by their occupants. The foreclosure rate is one way to measure how many homeowners are struggling financially, and therefore how much demand there will be for new homes.

Also see: U.S. Foreclosure Activity Drops To An All-Time Low In 2021

Consumer Sentiment

The University of Michigan's consumer sentiment index is released at 10 a.m. ET on the first Friday of every month. The index is a composite of five factors: current economic conditions, expectations for the future, personal finances, buying climate, and inflation expectations.

The survey has been conducted since 1946, making it one of the oldest economic indicators in the U.S. It has a long-term average of 95 and a high of 100 in January 2000. In December 2018, the index was 98.9 and has been trending higher since 2009.

Intrinsic Factors That Affect Real Estate Value

There are a lot of factors that go into determining the value of a house. Location, climate, schools and crime rate all have an impact on the value of a home.


Location is one of the most important factors in determining the value of a home. Homes close to shopping centers, restaurants and other amenities are worth more than those that are not. People want to live in areas that are close to entertainment options and other conveniences.


Climate is another factor that influences the price of a house. Homes near bodies of water generally cost more than those near deserts or mountains because they have better access to recreational activities. For example, if you live near the ocean then you can go surfing whenever you want to and this will increase your property's value dramatically.


Schools also play an important role in determining how much your home is worth. If there are good schools nearby then people will be willing to pay more for homes within their zones so that their children can attend them when they grow up.


Crime rates are also an important consideration when buying a home because it affects your safety as well as your property values. You don't want to live somewhere where there is high crime rates because this could put your life at risk as well as decrease the resale value.