News and Articles
August 8, 2022
Rising property values are often a welcome change for homeowners, but they can be a significant problem for prospective buyers. There are both benefits and disadvantages to increased home values. Higher home prices can stimulate the economy and revitalize depressed areas. As values rise, so does inflation, and the increase isn't always permanent — which can cause a crisis when homeowners find themselves in upside-down mortgages. Whether your clients plan to buy, sell, or stay put, you should understand the cause of rising property value and how it affects communities.
Low Market Supply
One of the leading causes of rising property values is a decrease in the inventory of homes available on the market. As fewer people decide to sell, the few listings that hit the market become a hot commodity, and this sense of scarcity will quickly drive home prices up. It isn't necessarily bad, but the dynamic may shift suddenly if an influx of homes becomes available. For this reason, market supply is often an unreliable predictor of long-term property value.
Increased Buyer Demand
Even if the inventory of housing in an area remains steady, values may still increase if there is a sudden increase in buyer demand. There are plenty of reasons why buyer demand may spike, but in many cases, it directly correlates to a community's desirability. If a community invests in continuous improvements, like investing in a custom community association plan, buyers may flock to the area — which in turn can boost values.
The Work-from-Home Revolution
One of the leading causes of increased buyer demand in recent years is the new popularity of work-from-home positions. Indeed, many jobs that previously required a presence in the office are now conducted entirely through remote platforms. As these professionals spend more time at home — and are no longer forced to factor a commute into their location — a new wave of homebuyers has flooded the market, causing property values to rise in some areas. It is especially true in towns outside of major cities, where a slower pace of life attracts previous city dwellers.
Low Mortgage Rates
Mortgage rates and home values share a complicated relationship, but interest rates are often inversely proportional to property values. It is because lower rates allow buyers to afford higher mortgages, and many sellers can sell their homes at a higher price. The stock market can influence mortgage rates, the economy, and the Federal Reserve, so it's not easy to predict the trajectory. Nonetheless, homeowners typically expect their property values to rise when rates go down. ◼
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