Miro Fitkova
February 2024

What Factors Drive the Real Estate Market?

There are a lot of discussions going on currently about the real estate market. The Fed has been aggressively raising interest rates for months, and to buy a home now is significantly more expensive compared even to the beginning of this year.  

The Fed also indicates that it’s got more rate hikes coming  as it tries to slow down record inflation.

This, paired with other worrying economic indicators, leaves many wondering if a housing correction is coming. Some feel that it’s already here. Many markets that were the hottest during the pandemic boom are starting to see the effects of a potential correction first.

For example, places like Austin and Phoenix are starting to see significant price dips.

Some analysts say we can expect pricing declines of anywhere from 15-25% in many parts of the country.

It leaves many people wondering exactly what factors drive the real estate market as a whole, affecting home prices in different countries.

Interest Rates

Interest rates holistically drive the real estate market.  If interest rates are low, people will be more likely to purchase a house because they can borrow money cheaply. You can afford a lot more houses if your rate is around 2% versus a rate that’s 6% and higher, and that’s what people are seeing right now.

As interest rates rise, there isn’t always an immediate slowdown in the real estate market. Rates move slowly, so buyers do have time to lock in their rates, but where we’re at right now is a time when the rates have been increasing for months. People no longer have those opportunities to lock in the best rates, and it’s likely to start catching up with the market.

When interest rates are high, there often tends to be a slowdown in the entire market because buyers can’t afford to borrow money at these rates.

There may also be more people looking for cheaper houses to stay within their budget even as rates are high.

The Economy

Bad economies tend to drag housing down with them. In 2008, people were being laid off from their jobs and struggling to pay their bills. Then, making the payments on a current mortgage becomes challenging, let alone thinking about buying a new home.

Even when people don’t lose their jobs, consumers tend to feel negative about making big purchases if the economy is bad. They have a tendency to want to hunker down during bad economies and wait out rather than make a giant leap and buy a home.

The Government

The government can do things that can strengthen the real estate market and encourage people to buy homes, or they can do things that slow it down.

In 2008, the government introduced a homebuyer credit that was meant to help people afford to purchase a home. They also created the HARP program, meant to help people refinance so they could sell their homes. While neither had a massive impact on the market, they did help stimulate some activity.

The government also creates and offers loan programs that can help people afford to buy a home more easily.

Supply and Demand

One of the things that some analysts feel could help the housing market out right now is the relationship between supply and demand. The supply and demand factor can be local, but it can also be national. Right now, even though interest rates are going up, there is a limited supply of homes. That’s a big part of the boom during the pandemic. People were competing for a very small supply of homes relative to how many wanted to buy.

This may not shift much, so it could keep the housing market stronger than otherwise, given the economic situation.


Finally, demographics describe the makeup of a population. These statistics play a significant but often overlooked role in the real estate market, the types of properties in demand, and prices.

When there are big demographic shifts, it can have a significant real estate effect.

For example, more older people are deciding to stay in their homes for as long as possible and age in place, reducing the supply of homes. At the same time, Millennials who delayed buying homes past when previous generations did are at a point where they have more interest in buying, reducing supply and increasing demand.

Miro Fitkova
E-mail: [email protected]
Fitkova Realty Group

Servicing The Greater Boston Area

Equal Housing Opportunity