Uncontrollable Factors that Impact Property Prices

After the housing property fall in the last part of the 2000’s, the U.S. real estate market has recovered, leading to a smaller home inventory and lower interest rates.  This is a good deal for sellers, but it’s not favorable to renters and buyers that have to deal with bidding wars, lengthy search periods and rising home prices in a competitive market.

A lot of complex factors impact housing prices including some that we cannot control. It’s vital to learn about these important aspects so that you can buy or sell your property at the right time.

Interest Rates

Mortgage rates rise with increasing interest rates. This reduces the price and demand for properties. The 2007 real estate crash proved that the U.S. property market had a global impact. It increased awareness about how loans and interest rates are utilized for home purchases. Unfavorable happenings abroad can impact your capability to sell property in the U.S. Therefore, you need to keep up with the trends in foreign investment and the worldwide market as these important elements play a role in the local market’s expectations.

The Economy

The prolonged recession between 2008 and 2012 revealed the link between real estate and the macro economy. Jobs related to real estate, such as mortgage financing and construction, faced considerable property depreciation. Keep in mind that local macro-economic trends can also affect home prices. For example, California’s income growth was about 1.2% in the 2015 first quarter compared to the national average of 0.9%.

A higher income average boosts buyers’ spending power which results in higher property prices. People with rising incomes tend to spend more on homes and housing demand is typically income elastic. Thus, the economy’s state has a big effect on the property market, as consumers’ capability to sustain real estate rates depends on important factors like unemployment, manufacturing activity, income growth and the GDP.

Investors

A NAR (National Association of Realtors) study reveals that investment buyers purchase about 20% of the homes on the market. These investors typically buy cheap houses to rent them out or to refurbish and sell them for profit. The real estate crisis in 2008 caused an increase in the number of distressed homes (houses that were sold short or foreclosed), which enabled investors to buy more homes.

If there is a decrease in the number of distressed houses, investors will look to liquidate a few of their properties. If they do this in an untimely manner, too many properties could simultaneously hit the market, leading to a reduction in home prices.

Location

Homes near facilities like schools, parks and restaurants typically have higher prices. Also, zoning restrictions impact land value indirectly and tax value directly. Local rules in an area and local construction activity can dictate the supply of new homes. Prices then will respond to a lack or abundance of available homes for sale.

In this way, local happenings can directly affect the value of properties. A home’s current price is also influenced by its potential value in the future. New schools, roads and other infrastructures can impact a location’s desirability. Though we cannot forecast declines and developments with certainty, a real estate expert who knows the local community and the history of a property can offer valuable insights.

Local Comparables

Comps or comparable properties sold in a neighborhood will impact the value of other homes in the area. Real estate agents and appraisers assess the recent sales of houses with similar features and use them as a standard to determine a property’s potential price.

Short sales and foreclosures generally complicate things as they reduce the sales prices and lower the  average sales rate. Offer details and comps usually drive the appraisal procedure, since appraisers will depend on recent comparables in the area.

There are many elements of real estate that you cannot control, but you need to stay informed about  market trends and developments in order to make educated decisions that can help you to boost your returns on investments.