- by Karishmah Siingh (VP Sales & Marketing, Sattva Group)
Whether you’re planning to buy a new home or sell your current one, recognising some of the major factors that cause home prices to fluctuate is essential. While the reasons that house prices vary can be complex, the advantage of knowing them is simple — by recognising the factors, you can easily buy or sell a home for the best price possible. Understanding these effects will help to ensure that you price your home accurately.
Keep in mind, that these six areas aren’t independent and could very well impact the other. So without further ado, here are six major factors that can cause housing prices to fluctuate.
1. Financial Changes
A major factor that affects the real estate market is the economy. When the economy is doing great and the rate of unemployment decreases, house rates tend to rise. This is because when people are secure in their jobs, they have an increased sense of job security and they willingly take on mortgage debt.
However, home prices drop when the economy is not doing great and people suffer from unemployment, the housing price drop, making it easy for people to invest and pay off their mortgage debt.
2. Supply and Demand
Real estate prices are impacted by supply and demand just like goods and services. When the supply is low and demand is high, this would be deemed a seller’s market. On the other side, it’s considered a buyer’s market when the supply is high, but the housing demand is low. With an oversupply of housing options, prices tend to fall and stay in the market longer.
Additional tip: A great way to stay updated on supply and demand is to follow real estate news in major media, or even just keep an eye out for the bunch (or lack thereof) of “for sale” signs in various neighbourhoods.
3. Mortgage Interest Rates
After looking at current monetary data, the Federal Reserve has the authority to raise or lower interest rates at specific times throughout the year — which can impact the real estate rates set by lenders.
Differences in interest rates can impact the price of homes and a homebuyer’s ability to purchase one. This is because the lower interest rates fall, the lower the mortgage cost will be, thus increasing the demand and pushing prices up. Simply put, low mortgage rates enable homebuyers to take out home loans, which is ideal for home sellers. The opposite can happen when interest rates rise.
4. Location
Actually, when home prices fall on a national level, prices in a specific location may rise — and vice versa. This is due to the demand. Some location factors that can influence housing rates include:
Neighbourhoods
Connectivity
Attractions
Hospitals
Schools
If you’re looking to buy a home in an area with a recent surge of restaurants, happening spots, and good schools, home prices will be higher than in areas lacking in these aspects. Other factors that can cause price flux are things like crime rate, access to quality healthcare, and proximity to roadways.
5. State regulations
There are a couple of distinctive ways government forces can impact home prices. The first is through loan interest tax deductions. Another governmental influence is through tariffs. Building materials like steel, aluminium, and lumber are sometimes imported from other countries. And applying tariffs on these imported supplies can increase the cost of building new homes — influencing housing rates as a whole.
6. Building value
Most house investors and homebuyers are interested in the renovation potential of a property. This could be the potential to increase the floor space, add an extra floor or extra room, or add an outdoor terrace or a pool. If there is an allowance for a buyer to customise or enhance a property, the value of the property will be higher.
So, here are 6 significant and useful factors to consider while buying a property.
