Several complicated factors determine home pricing values. Some of these things we have no control over as a buyer or seller. As the housing market fluctuates from a buyer’s market to a seller’s market and back again, everyone is at its mercy at one time or another.
To be successful in the world of real estate, regardless of whether you’re buying or selling, you must first understand the factors that impact home prices. Here are several factors that affect home pricing the most.
In a nutshell, the state of the economy has a direct impact on the real estate market. Critical factors such as the country’s gross domestic product (GDP), income growth, manufacturing activity, and unemployment rates determine a consumer’s ability to hold up to property prices at any given time.
Real estate is often considered income elastic, meaning that increasing income levels lead to more money spent on home purchases.
The higher the interest rates, the higher mortgage rates are likely to be, too. This increase leads to less demand in the real estate market, which causes housing prices to fall.
While the home itself has a lot to do with what it’s worth, what goes on around the home also has an impact on its value. For example, if a home is located near a thriving city with lots of restaurants and entertainment, it will likely sell for more than a similar home located in a rural area.
Having said all of that, what a home could potentially be in the near and distant future can also play a role in its value as future developments can also impact what a home is worth.
The buying and selling of investment properties affect housing prices. When the real estate market crashes, it creates an influx of distressed and foreclosed homes that investors can snap up cheap to either fix and flip or to rent out.
Should investors decide to liquidate their properties at some point, too many of these homes could hit the market at the same time, creating more supply than demand, which could cause a decrease in home prices.
The sale of neighboring homes can impact the price as well. Called “comps,” agents and lenders use the sale of similar homes in the area to determine the price of other homes being listed for sale. A short sale or foreclosed property nearby may complicate this process as these properties often sell for less than they are worth.
Remember, you don’t have a lot of control over many of the factors that go into determining the price of a home, but by understanding the market and the factors that impact home prices, you can make informed decisions and time the purchase or sale of a home just right to maximize your success.