These micro-markets all come together to make a large-scale macro market. For example, the housing market of Germany is micro when compared with the housing market of Europe, which comprises England, France, Italy, etc.
Trends that affect the macro market usually have effects on the micro-market, and in the same time, trends that affect the micro-market have effects on the macro market.
Take, for instance, the COVID-19 pandemic of 2020. The commercial real estate market took a huge dip because not a lot of businesses were renting spaces for work; everyone wanted to work from home.
Asides from the pandemic, other factors such as natural disasters; hurricanes, tornadoes, floods, government policies, etc. also affect the real estate macro market.
Secrets to Macro Real Estate Investment
Despite the frequent changes and risks that the macro real estate market is susceptible to, there is certain knowledge that you could possess that would help you generate wealth.
One of these vital tips should be widely known, however, only a few people pay serious attention to them before going on to invest. Hence, they could be regarded as the top secrets in macro real estate; National and Regional Factors.
Study National and Regional Factors That Affect Macro Real Estate
Taking your time to study national factors that affect macro real estate will help you in identifying market trends and dynamics and what they signify.
With this knowledge, you will be able to make decisions that will either protect you, in cases of risks or put you ahead in cases of profit making.
Some of the main national and regional factors that affect the real estate market, to which careful attention should be paid are:
Interest rate is one very important factor that influences the real estate market. Typically, a lot of real estate investors use loans, rather than their personal funds to buy properties.
These mortgages could be gotten from banks, or other money lenders, who would charge a specific percentage of the total amount loaned as interest.
Lending institutions hold the decision to charge whatever interest rate they want, however, this rate is usually influenced by the federal funds rate. An increase in the federal funds rate would lead to an increase in the prime interest rates of banks and vice versa.
The question you might ask is whether it is best for you to invest during a period of high interest rate, or low interest rate. The answer depends on what investment strategy you are looking to practice.
If you want to lease out your properties rather than sell, it is more advisable that you buy properties when the interest rate is high, as fewer people will be more willing to rent houses than to collect mortgages to buy houses.
On the other hand, if you are looking to sell out your properties, then you should purchase them when interest rates are low. This is because it would be easier for you to take larger loans at this period, hence buying more expensive houses (leverages) that would give you higher profits.
Potential buyers too, since they can get larger loans, would be willing to pay higher prices to buy their dream house.
Inflation causes a rise in prices and makes the value of your money lower, that is you have a lesser purchasing power than usual, even with the same amount of money.
Moderate changes in the inflation rate are nothing to worry about as a real estate investor. If the inflation rate increases, it causes properties to cost more, meaning you could charge your tenants a higher rental rate – this mostly applies for new tenants, as old tenants have annual contract leases.
If the inflation rate decreases, the opposite happens, but as long as these changes are not extreme, your investment is safe.
In extreme cases of hyperinflation or deflation, however, you might experience a problem. Hyperinflation makes the cost of maintaining your building more than the rent you can reasonably charge thereby putting you at a loss.
Deflation, on the other hand, causes a dip or drop in real estate prices, also putting you at a loss. During these periods, the best thing to do is to stay out of real estate buying and selling until the prices stabilize.
For these reasons, it would do you a lot of good to be constantly aware of the current inflation rates nationally in case there is an extreme rise or decrease.
Flow of Investment Funds
This is another factor that has to be considered during macro real estate investment. The flow of investment funds has to do with the traffic in real estate, that is the number of people getting involved in buying and selling.
An inward flow into real estate means a high number of people are involved while an outward flow means a low number of people are involved. Basically, the higher the traffic, the higher the prices of properties, and the lower the traffic, the lower the prices of properties.
The following are factors that can affect the flow of investment funds into the real estate market:
- Tax breaks
- New lending laws
- Foreign investment in a local market
- Stock market crash or rise
Typically, a fall in the stock market could lead to a rise in the real estate market, and a rise in another market could lead to a fall in the real estate market, as people rush in and out to prevent losses.
As an investor, investing in real estate when a lot of people are getting out of it would be a nice idea as you can get properties at inexpensive prices.
Rather than follow the crowd, you should try to study and understand the factors that influence the flow of funds into and out of real estate, to determine the best time to buy or sell.