Whether you’re looking to purchase or refinance a home, it is beneficial to understand some factors that may cause home values and prices to fluctuate.
One of the main factors that a homebuyer evaluates is the location of the home. One’s location preferences may vary depending on proximity to work, schools, family, or even entertainment. Some neighborhoods may have higher demand, and in turn, homes with steeper home prices. Home appraisers review the following factors related to location to determine how much a home is worth:
- Proximity to attractions
- Quality of school districts
- Employment opportunities
- Proximity to highways and public transit
- Proximity of nearby hospitals
Home size and usable living space
Another factor that may influence the home’s price is the size of the house and the amount of usable living space. Home prices are typically calculated and estimated at a price per square foot. For example, if a 3,000 sq. ft. home sold for $300,000, then the price per square foot would be $100 ($300,000 / 3,000 sq. ft).
Usable living space refers to finished rooms, so Unfinished basements, garages, and attics are generally not counted in usable living space. However, many homebuyers prioritize livable space, especially if they are looking for a certain number of bedrooms and bathrooms for their family members. Thus, the more beds and baths the home typically offers, the more your home may be worth.
Age and condition of the home
Generally, newer homes are bought and sold at a higher price than older homes. This is because newer homes typically have up-to-date and energy-efficient plumbing, roofing, electrical systems, and appliances. If the systems and appliances are in poor condition, the potential homeowner would have to replace/fix them and spend more money out of their pocket. A home inspection may shed light on possible repairs or updates needed and allow a potential homebuyer to negotiate the sale price. Thus, most homebuyers will pay a premium to have a move-in-ready home.
If you are a homeowner looking to improve the resale value of your home, read more about which home improvements and repairs may add the most value.
Supply and demand
Supply and demand in the housing market can directly impact home prices. When homebuyer demand is high, and supply is low, it leads to a seller’s market, which often leads to bidding wars. It is common for homes to sell above asking in a seller’s market, leading to other home prices rising. When demand is low, and supply is high, it leads to a buyer’s market. Homebuyers have more control and negotiating power in a buyer’s market, which may cause home prices to lower.
Mortgage interest rates
Interest rates are a significant factor that affects home prices. The lower the interest rates, the lower the mortgage cost will be, thus increasing demand for homes. Lower interest rates and lower monthly mortgage payments may encourage and motivate people to enter the housing market and take out a mortgage.
Overall, many factors affect home prices. If you are thinking about buying a home, review the following elements and speak with a mortgage specialist to determine your buying and negotiating power. Additionally, if you are looking to sell your home, reviewing these factors may help you determine if the price of your home is in line with today’s market.