5 Factors That Cause Home Prices To Plummet or Skyrocket

Tackling the housing market can feel overwhelming, whether you’re buying or selling your first home or are a seasoned investor. No matter your experience level, it’s essential to understand the factors influencing home prices to get the best return on your investment . GOBankingRates had experts break down five economic indicators that impact housing prices to provide insight on how to buy or sell your property with confidence.

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1. Time of Sale

One of the biggest factors [affecting] home prices rising and falling is the timing of the purchase and the sale, said Jared Blumberg, Licensed Real Estate Salesperson & co-founder of the Blumberg Werner Group at Compass in New York City.

“It goes back to the simple principle of trying to buy low and sell high, which any experienced investor will tell you is easier said than done.”

“Most real estate goes up and down over long periods of time, and the longer you own something, the higher the probability you can time it correctly to make a good profit.

Blumberg said to time the [sale] properly, you need to have your pulse on the market regularly or have an agent you can rely on for advice. “I can tell you that by the time the [condition of the market] makes it to the national spotlight, it has already been going on for many months,” said Blumberg.

“A relationship with a local real estate agent can be most critical because they know when things are changing before there is substantial data to report on.”

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2. Location

Another factor that influences the real estate market is location. You’ve likely heard the adage, “location, location, location more times than you can count. The following elements can cause home prices to rise.

• New residential construction on the waterfront
• Downtown areas being developed or restored
• New schools and new hospitals built
• Luxury communities in local neighborhoods

On the other hand, poor-performing schools and climbing crime rates cause the value of properties to drop.

3. Migration Trends

People migrate to different locations for various reasons, including job relocations, retirement, and health reasons. One of the biggest migration trends occurred in 2020 during the Covid-19 pandemic.

People in large cities such as New York headed for the suburbs in droves. City house sales and rental prices plummeted while suburb housing costs and rental rates went through the roof. After a vaccine was developed and metropolitan cities began to stabilize, many families returned to cities, which raised housing and apartment rental prices there and lowered prices in the suburbs, which had reached a historic rate.

4. Inventory Supply

When demand is high, but supply is low, it drives prices up,” said Alex Blackwood, CEO and Co-Founder of Mogul Club , a real estate investment platform.

“I would also argue that inflation doesn’t directly cause home prices to increase, unlike what most may think. The reason real estate is an inflation hedge is because appreciation tends to outpace inflation.”

One of the factors that makes home prices skyrocket is when the aging population stays in their homes and occupies existing inventory, there is less supply and available homes for sale in the market.” said Blackwood.

5. Increase in Interest Rates

Sellers eager to sell might need to lower home prices when interest rates are high, such as in the current housing market. [When the FED jacked up the interest rates,] it raised people’s monthly payments and reduced the number of people able to buy in the different levels of the pricing pyramid, said Real Estate Investor and Developer Jose Berlanga .

“Clearly, the lower the price point, the greater the number of buyers [you have], and when you raise interest rates, [homebuyers] that could afford a $500,000 home can now only afford a $400,000 and so on and so forth; which causes major discounts and home price devaluations,” Berlanga said.

This article originally appeared on GOBankingRates.com : 5 Factors That Cause Home Prices To Plummet or Skyrocket