The real estate market is experiencing something of a sea change right now, at least in some parts of the country. For over a year, we have been experiencing a red hot seller’s market, with properties receiving offers hundreds of thousands of dollars over asking. However, the market may be turning the corner as house sales and prices begin to cool down. Depending on which report you read or the city you live in, the real estate market is either returning to a buyer’s market or will remain a seller’s market for quite some time. It’s not unusual to read a newspaper article predicting a drop in prices of possibly 20%, juxtaposed in the same publication with another article reporting ‘sky-rocketing prices.’ Small wonder if those looking to invest in real estate are confused.
It’s not unusual to read a newspaper article predicting a drop in prices of possibly 20%, juxtaposed in the same publication with another article reporting ‘sky-rocketing prices.’ Small wonder if those looking to invest in real estate are a tad confused.
Additionally, why do two similar properties in the same neighborhood have widely different price tags? Part of the explanation is the behavior of listing agents; some realtors deliberately price low to stimulate a bidding war so they can claim their listing sold for “over asking.” While others will price high, intending to provide “wiggle room” for negotiations and still get their clients the amount they want. These practices do make it more difficult for home buyers or investors to gain a realistic idea of a particular property’s worth. But realtor’s tactics aside, many other factors can affect house prices.
According to Investopedia, the four main factors that affect price are:
Retirees looking to downsize; young families looking for homes in “good” school districts; professional couples searching for homes with space for remote working, etc. All these groups have different needs and can affect real estate prices in particular areas – sometimes quite dramatically.
As interest rates rise, first-time buyers are often adversely affected as affordability, already a major issue in many parts of the country becomes even more challenging. As a result, house prices may start to drop.
With inflation at 8.6% in May 2022, investing in real estate may seem favorable; real estate has historically held its own as an inflation hedge. On the other hand, a high inflation rate leaves would-be home purchasers and renters with less disposable income.
Government incentives and subsidies can help real estate prices; however, if the Federal Open Market Committee raises interest rates in an effort to curb inflation, then real estate prices will likely trend downwards.
Price Differences Between a Similar Area or Style of Home
However, the points noted above could apply to all real estate markets and to all properties in much the same way; how then do we account for differences in price within a similar area or between houses of a similar size and type?
There are many other factors that can make a substantial difference in the asking price between different properties. “Location, location, location.” An adage that is no less true for being hackneyed; location is always key, but size, amenities, and condition are also major factors when it comes to pricing.
Greater square footage will always attract a higher price – same with the amenities offered – outdoor space, garages, decks, sunrooms, mud rooms, ‘gourmet’ kitchens, new flooring, office space, and extra bathrooms all serve to raise the price. Similarly, a well-maintained home with neatly landscaped grounds will fetch a higher price than a home that has been neglected or fallen into disrepair.
EMCAP Lending describes three other major factors affecting house prices:
For families with school-age children or couples anticipating having school-age children, picking a home in a ‘good’ school district is a major attraction. Single-family homes in areas where the local schools enjoy a good reputation will always attract a premium.
Waterfront properties inevitably attract premium prices. A water view and easy access to water for boaters and swimmers can expect to raise a property’s price considerably in comparison with neighboring properties that are farther away from the water.
The type of neighborhood where a home is located will seriously affect pricing. Home buyers generally want to purchase in a neighborhood that is considered safe and pleasant, away from busy roads, with easy access to amenities, with a selection of shops, restaurants, cafes, and leisure facilities within easy reach. Neighborhoods, where there are factories, unattractive municipal features, such as landfills, high levels of homes that are unkempt, or high crime levels will depress house prices.
Neighborhoods that are regenerating, will be viewed as attractive, as will those with parks or access to green space and other leisure activities.
Closeness to one’s work is another crucial factor when considering one neighborhood over another. Is it worth a longer commute for a better neighborhood? Or is a shorter commute and better work/life balance key?
Finally, local politics are also important. Is the local town council progressive? Is investment in infrastructure encouraged? Is there a ‘green’ movement active in the area?
All these factors, and more, can affect the price of houses in a particular neighborhood and, ideally, all should be taken into consideration by prospective buyers. Personal preferences will vary as will the differing requirements of various demographics. Nevertheless, location, condition, and space – both indoors and outdoors – as well as other social factors, such as local employment opportunities, leisure facilities, and demographics, remain important elements that can drive prices up or down.
Interested in Becoming a Real Estate Investor?
If you are a new real estate investor, then you may not know the latest news and trends about the real estate market in Florida. Fortunately, our team of experts at Titan Funding can help you navigate the real estate landscape and find a deal that matches your strengths. We will help you access funding and give you the tools you need to get your investment career up and running. Please reach out to us today if you would like more information about our private money lending and investing services.