Yesterday’s home price may not be today’s, and there are a number of reasons why. It may feel like home sellers hold all the power, but there are several variables that must be considered before a value is attached to a home. Here are a few factors that could lead to higher or lower home prices.
1) Recent home sales
Usually, when a homeowner is ready to sell their home, they’ll work with a real estate agent to determine a suitable sales price. This process normally involves researching homes in the neighborhood most recently sold to new owners. Professional real estate appraisers also rely on local home sales to determine a home’s fair market value.
2) The type of housing market
The direction of home prices is also dependent on whether we’re in the middle of a buyer’s or a seller’s market. Think of this as the “supply and demand” factor.
In a buyer’s market, there are more homes available for sale than there are homebuyers—supply outpaces demand. This could give buyers a potential advantage over home sellers since the chances of a bidding war are slim. Sellers are usually more motivated to negotiate on the sales price or offer concessions to close the deal with the right buyer.
Conversely, in a seller’s market, there’s more demand than supply—buyers outnumber the homes on the market and sellers hold the negotiating power. They may even slightly lower their home price with the intention of encouraging buyers to compete and submit higher offers.
3) The home and its neighborhood
The interior and exterior features of a home also affect its value. These features include square footage, number of bedrooms and bathrooms, landscaping, home condition, physical location, and more.
Amenities in the surrounding neighborhood can also contribute to home values. Does the neighborhood have a pool or tennis courts? Is there shopping or mass transit nearby? Is the home near the interstate or in a more remote area? All these things add to a home’s sales price.
4) Mortgage interest rates
The connection between mortgage rates and home values is more of an indirect one, but rates can ultimately help determine a neighborhood’s home values. This is because, as a homebuyer, your mortgage interest rate determines how much house you could afford.
If you have a strict budget, a higher interest rate could price you out of buying a home in your desired neighborhood. If buyers run into affordability issues due to rising interest rates, they may table homeownership plans, thus leaving more for-sale homes on the market. Fewer active homebuyers could push the neighborhood into buyer’s market territory.
Questions? Reach out to a Wyndham Capital loan officer today to help walk you through the home buying process.
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