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Understanding Property Prices
1. Understanding
Property
Prices
Unimaginative people forecast property prices Contents
in the same way they do the weather – what Introduction....…...............…....................…..1
Interpreting Economic Growth....................2
happened yesterday will be approximately the
Understanding the Role Mortgage Interest
same tomorrow. The problem with this Rates Play.....................................................2
approach is that they miss out on planning for Countering Inflation.....................................2
unnexpected things, like balmy days when
profits are available to be hunted down.
2. 2
Interpreting Economic Growth
Governments and their banks are quick to announce up-ticks in
their economies, because they make good political profit from
them. Average real estate prices are sensitive to these
announcements, especially in early days. When you anticipate
and know this, you can turn profits surprisingly quickly. For
example, a 1% increase in gross national product may translate
to a 4% price increase if other factors hold good.
Understanding the Role Mortgage Interest Rates Play
Speculators need increasing average property prices to make money. In turn, these need eager
buyers. Few of these can afford cash though, and this means that cheap loans are required to
complete the growth cycle. This is a hard nut to crack. Governments lower interest rates in
recessions and tweak them up in boom times to control inflation. Between these two points,
there is a magic moment when interest rates are low and property prices are rising. This is when
property speculators strike gold.
Countering Inflation
As mentioned, interest rates have a strong influence on
property prices, and hence the profit that may be made from
selling on. There is a dwell time here too - sellers are not
always aware of current trends and may sell on at lower prices
than they need to.
3. 3
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