Three Factors That Affect Real Estate Prices
When is it the right time to sell a property? There are lots of different factors that combine to determine what the real estate market is like at any given time, and understanding what the market is doing—and why—is a complicated business. However, learning a bit about how real estate value is affected by the economy and other factors can help you decide the best time to sell, or and the best time to buy.
What is the Economy Doing?
There are many different economic forces that influence property prices, at the neighborhood, county, state, and national level. It’s a complex mix of things like local property taxes, wages, current interest rates, and the availability of credit to people in the local community. For example, if credit is easy to get, and interest rate are low, it’s easier for people to get started on the property ladder, which leads to increased demand, and consequently, real estate prices start to increase. On the other hand, low credit availability and high interest rates mean that fewer people can afford to buy, and the supply of homes for sale is higher than the demand, so prices decrease.
Note that whatever the economy is doing, the real estate market typically takes time to catch up—when interest rates drop, for example, house prices don’t necessarily go up right away. It takes time for demand to increase and prices to follow. This is why keeping a close eye on interest rates and the local housing market can be important if you’re buying or selling, as it helps you predict market trends and sell higher or buy lower. Mortgage calculator tools are useful for helping figure out how changes in interest rates will affect your ability to get a mortgage, and how much you can borrow.
What else is in the Neighborhood?
Apart from the general and local economy, the single biggest deciding factor for property prices is location—where a home is located, and what types of amenities are located within the area, make the difference between an inexpensive and a pricy neighborhood. And, of course, the view a property has makes a big difference too, as does the general type of neighborhood it’s in—rural, urban, and suburban neighborhoods all have different price ranges.
Amenities within walking and driving distance can be highly influential, especially in urban neighborhoods, where people are often more likely to walk as they are to drive. Sometimes, the effect of some amenities is difficult to predict, however. For example, the existence of a halfway house, rehab facility, or similar type of organization in a neighborhood may affect house prices. It’s not at all the case that these types of facilities automatically lead to disturbances, crime, or other problems, and often a shelter or rehab can become an important and even beneficial part of a community’s identity. To some people, however, the simple presence is enough to deter them from moving into the area, perhaps leading to reduced demand for property. That can actually turn into a lucky break for someone who wants to buy a property in the area and may end up getting a bargain.
One thing that tends to drive up real estate prices in a neighborhood is whether it’s in the right zone for the most desirable schools. In general, the better the schools in any given neighborhood, the higher real estate prices will be, and this can be true even if the houses themselves are less than desirable. It’s a common phenomenon even for houses on the same street, if one side or end of the street is in a desirable school district, and the other side or end is in a different and less desirable one.
What is the Property Like?
The property itself is sometimes the least important thing that determines its price—that’s why people say buy the worst house in the best street, instead of vice versa, because it’s the neighborhood you pay for, just as much as the home. This isn’t always true, of course, but it does demonstrate that property prices are about much more than just the property itself. In general, well-maintained homes and lots, that have customization potential, can command higher prices, regardless of the size of the property or its décor.
Social trends can play an important role in property prices too, if they affect the neighborhood, or the properties themselves. One obvious example is the increasing desirability of homes that incorporate environmentally friendly concepts like solar heating and rainwater collection. With more and more people becoming environmentally aware, features that reduce the carbon footprint of a home are more popular.
Thanks to Emma Crosby
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Caitlin Gallagher. “Already in My Back Yard.” Accessed May 15, 2014.
Joseph Nguyen. “4 Key Factors That Drive the Real Estate Market.” Accessed May 15, 2014.
Propertylogy. “10 Timeless Factors That Affect Property Price.” Accessed May 15, 2014.
Rehabs. “How treatment programs work.” Accessed May 15, 2014. About rehab facilities.
School Digger. “The Easy way to Evaluate K-12 School Performance“. Accessed May 15, 2014.
Image courtesy of Stuart Miles / FreeDigitalPhotos.net