Real estate 101: When do Price Drops Occur?

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Posted by IPS Commercial on November 24, 2022

The real estate industry is a huge market reliant on numerous factors that help determine if there’s a price boom or not. Knowing what these factors are will help if you want to buy your next home or investment. Whether you’re buying now or in the future, the best time you need to do it is when the prices are down. This way, you can get a better bang for your buck if you decide to sell at a later date since the value will be higher!

To have a better idea when property price drops happen, check out the list below.

If the interest rates increase

One of the determining factors of price drops is when interest rates increase. Considering that the best time for buyers to invest in a home is when mortgage rates are low and thereby affordable, if the interest rate increases, the number of buyers decreases.

In the real estate industry, even if the property is within a buyer’s range but the monthly payments are not, buyers won’t push through with the transaction. Some homes are up for foreclosures as well at this time due to previous buyers not having the financial capability to proceed with their monthly payments. 

Due to this, the potential buyers in this time will lessen causing properties to be kept in the market for a while until they’re sold at the same price or their price drops just to find a buyer. More cases of real estate properties decreasing in value will appear the longer the listing is posted, which makes it a good time to buy if you’re an investor with the right funds.

If there is more real estate supply than demand

Once you have increasing rates, the eventual result would be more real estate properties becoming available in the market. This leaves a huge gap between supply and  market demand, leading to price drops in property values. Despite the reduction in prices though, it is not likely that demand will increase if other factors like interest rates, boom in unemployment and more continue.

On the other hand, if you’re in a good financial state to invest in a property during this time, you can take advantage of the fact that you have numerous options to choose from. This will allow you to review these properties to the letter and determine which one fits what you need the most as well as what will be the most valuable in the long run.

If it’s difficult to get borrow house loans

Banks and other financial institutions are at the forefront of adapting to the economy’s financial state. This means if the current economy is suffering from extreme factors like a pandemic, banks lessen the risk on their side by decreasing the loans they approve and tightening their approval rate.

Due to this, buyers who are denied loans more often don’t push through with buying a home through other means, resulting in waning demand. Eventually, prices drop in value since more properties are available in the market but there aren’t enough buyers.

If there’s an unemployment hike

One of the biggest indicators of real estate properties lowering in value is if there’s an unemployment hike. Considering that money would be tight, there will be fewer potential buyers for residential or even commercial properties. This decrease in demand and price value isn’t only for the short term since it will take awhile for the economy to rebound.

What this means though for future buyers and investors is that the period of cheaper real estate properties will stay for a given time. This will allow them to take their time to choose which properties they want to invest in, do their market research diligently, as well as compare real estate market prices in Cambodia.

If natural disasters occur

Natural disasters are one of the most unpredictable factors in the real estate industry. However, they can cause indomitable effects on the market prices immediately, depending on how bad the natural disaster is. For example, if a large-scale hurricane or flood were to occur in a given area, the undue damages in properties there would take a while to recover. This can take a toll on the finances of real estate developers and homeowners who will need to fix the properties quickly.

Moreover, properties that were subjected to flood are not attractive to most buyers, causing a decrease in demand and its value to drop quickly.

If foreclosures and short sales occur

Sometimes, foreclosures are unavoidable especially if unforeseen circumstances affect a buyer’s ability to pay mortgages. However, if there is a consistent stream of foreclosures in a specific area, the overall property values in that neighborhood are guaranteed to decrease. Additionally, if a number of short sales were to occur, then the same price reduction of properties will happen.

What this means for you as a buyer is that you need to do your market research diligently and find areas with a number of foreclosures and short sales to buy properties at a lower value. Moreover, if you’re finding it difficult to find great property listings, then let us help! As one of the premier real estate companies in Cambodia, we have a team of dedicated experts in the field that will guarantee an easier and smoother process to buy the home you want.


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