Definition: The housing market represents the market for properties being purchased and sold either directly to buyers or through real estate brokers.
What Does the Housing Market Mean?
What is the definition of housing market? The housing market, also known as the real estate market, brings together different stakeholders, which are: the homeowners who are selling their properties, the renters, the real estate investors who buy and sell properties solely for investment purposes, the contractors, the renovators, and the real estate brokers who act as facilitators in the process of buying or selling a property.
The main determinants of demand in the housing market are related to demographic factors. However, factors such as income, availability of credit, and consumer preferences are also important. Demographic factors include the size of the market because the more the consumers, the higher the demand, as well as the rate of marriages, divorces, and deaths, which provide an idea of the population growth.
Let’s look at an example.
Jeremiah is a real estate investor. He loves to invest in REITs (Real Estate Investment Trusts), thereby participating directly in the ownership of financing of real estate projects. Jeremiah creates an Excel to compare the returns of the REITs to the S&P 500, the Dow Jones Industrial and the Russell 2000 indices.
In 1-Year, the REITs returned 27.15%, significantly higher than the S&P500 (6.05%) the Down Jones Industrial (5.80%), and the Russell 2000 (4.80%).
In 3-Year, the REITs returned 20.14%, slightly higher than the Russell 2000 (19.21%), but significantly higher than both the S&P500 (7.06%) and the Dow Jones Industrial (6.79%).
In 5-year and 10-Year, the small caps seem to significantly outperform the market with the Russell 2000 Index returning 70.98% and 61.03%, respectively. However, the REITs’ returns are again significantly higher than S&P500 and Down Jones Industrial both in 5-Year and 10-Year.
Jeremiah will keep on investing in REITs, especially in those that deliver high dividends. On the other hand, there is a positive correlation between the performance of the REITs and the geographical sector that they trade. In this context, REITs may be vulnerable to exposure in emerging markets or major economic cycles.
Define Housing Market: Housing market means a network of sellers selling homes and a corresponding network of buying looking to purchase homes.