Fluctuations in the housing market are something of a double-edged sword. While rising values may mean that you can get top dollar for your property, unless you are relocating to an area where the market is stable, you may also have to shell out more than you expected to secure your replacement home.
If you are considering selling your home, you may have been tracking home values of similar properties in your neighborhood for a while to help you determine the best time to put yours on the market. You may not have seen any massive fluctuations within the last 12 months, but if you look back further, you will probably come across a pattern of rising and falling home values.
So, what exactly causes home values to go up and down? Read on to find out more.
Causes of rising home values
Home values rise as a result of something known as appreciation. The faster the rate of appreciation, the quicker – and often higher – property values rise. There are numerous different factors that can cause appreciation to occur, but typically these include the following:
If there are very few properties for sale in your area, and more specifically, few properties like yours, then demand increases. Sometimes increased demand is due to population growth, either through birth or migration, but sometimes is simply occurs because very few people want to relocate out of the area, making homes coming onto the market fairly scarce. If you live in a desirable area and there are few properties for sale, you can nearly always expect the value of your home to rise.
Inflation occurs when there is an excessive amount of money in circulation. This causes the value of money to fall and the price of goods and services to rise. Home values also tend to rise with inflation. This can be particularly good news for home buyers because a property purchase is a leveraged asset. The house price rises by the rate of inflation times the cost of the house, not by the cost of your down payment. If inflation doubles the value of your home, it may have also significantly increased the value of your down payment. If you have taken out a fixed-rate mortgage, then the news is even better as you will be paying less for the loan than you did when you took it out. However, inflation doesn’t and shouldn’t go on forever so strike while the iron is hot!
Local changes in infrastructure
The area in which you live plays just as a big a part in driving home values. This is because social and physical infrastructure changes are a major contributing factor in growth of the real estate market. Developments such as new shopping malls, hospitals, great schools, job creation and even improved road links to surrounding areas can all contribute towards appreciation.
Causes of falling home values
Contrary to popular belief, falling home values is not necessarily a bad thing – especially if you are trying to get onto the property ladder for the very first time. Lower home values also enable greater social mobility and help more people to buy property investments. There can be several different reasons why the value of property may decrease.
Increased mortgage rates
If your buyer is reliant on a mortgage to buy your home, and mortgage rates rise, home affordability decreases for them. This is because they will not be able to afford to spend so much on their initial purchase owing to the increased interest rates pushing up their monthly repayment cost.
Foreclosures/short sales in your neighborhood
Having short sales and foreclosures on your street, and even just in your neighborhood can lower the value of your property. This is largely because prospective buyers tend to worry about the stability of the housing market in your area and may also be concerned about the future value of their home.
Not all infrastructure development is positive, and you may find that there are changes happening in your area that actually have a negative effect on the value of property. This could include things such as the construction of a power plant or an excessive number of homes being built in one vicinity which could put strain on local services can all lead to a drop in home values.
Failure to keep up with your home maintenance
One thing that is in your control is the condition of your home. Unfortunately, properties that are in disrepair or are poorly presented tend to demand much lower prices than those where the owner has invested time and energy in making their house appear in the best possible light. Don’t put off those quick and inexpensive jobs – fix leaking taps, ensure all the lights are working and replace cracked tiles. Make sure that your house looks like a much-loved and cared for family home and you could see the value of your property increase.
For more information on what drives home values up and down, or advice on the best way to get top dollar for your property sale, please don’t hesitate to contact and speak to our experienced real estate team here at Texas RoadRunner Realty.