Property prices around the world rise and fall in cycles, impacted by influences such as economy, interest rates and employment. Depending on the circumstances, property prices react across the globe or they are affected on a more local level, relating to country or even suburb.
As homeowners, we’re never happier than when the value of our home is on the rise, but impacts, often outside of our control, cause prices to fall. Here are 6 of the biggest impacts that bring property value down:
Demand for housing is dependent upon income. When the economy is in poor shape, income declines, employment rate goes up, home ownership gets put in jeopardy and people have less money to spend on things like housing.
Sellers then lower their prices to compete in a diminishing market and values take a downhill turn.
The good news is, property tends not to see the same declines as shares during an economic downturn, because we use property to live in and it’s not as speculated upon as shares. Also, it can’t be bought and sold as quickly as shares, so price movements aren’t as volatile.
Higher interest rates
When interest rates increase, home affordability is less in reach for many buyers. Buyers can’t afford to spend as much on the initial purchase price because their monthly mortgage payments are higher and they have to pay more over the life of the loan. Homeowners with variable mortgages are more impacted by high interest rates than those with fixed loans.
A rise in interest rates also affects sellers because the pool of buyers able to afford your sale price tends to be lower. You may find you have to drop your price to appeal to more buyers.
High-interest rates can also drive a shift towards renting property as it becomes the more affordable option.
Consumer confidence affects property prices, because when confidence is high people tend to shop more, spend more and borrow more. If people are worried about the economy and that property prices are going to fall, they can be anxious about taking out a mortgage and delay buying.
The media play a huge role in driving down consumer confidence because negative headlines tend to sell and when the economy takes a turn for the worse, the papers fixate on doom and gloom predictions about the state of the economy.
Supply and Demand
When there’s an oversupply of houses and low demand, property prices fall as sellers must compete against each other for a smaller pool of buyers, often forced to lower their sale price.
The supply of housing depends on existing stock and new house builds. Supply and demand can be relative to specific regions, cities, even suburbs, which is why two nearly identical properties in different locations may sell for vastly different prices.
A new hospital, or a new school within a suburb can quickly catapult demand within a suburb due to an increase in jobs or parents wanting to move within the catchment zone of the school.
During economic booms, banks are keener to lend mortgages with more relaxed borrowing conditions such as lower deposits. On the reverse side, they often tighten their lending criteria during economic instability and credit crunches when they struggle to raise funds for lending on the money markets. This drives down demand, and subsequently property prices.
Environment plays a huge role in the value of property. We want to live in locations that have beautiful scenery and deliver a high quality of life. When the environment we live in is negatively impacted by a landfill leaking methane or the scenery is destroyed by the installation of a new power plant, the appeal and demand for that location declines driving down the value of properties in the vicinity.
Disclaimer: This article is general information only and is intended as educational material. PropertyNow nor its associated or related entitles, directors, officers or employees intend this material to be taken as advice either actual or implied. You shouldn’t act on any of the above without seeking qualified advice, which takes your individual circumstances into account.