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Why Exactly do Home Prices Change?

Why Exactly Do Home Prices Change?


Home prices fluctuate frequently. There are 5 key factors that affect the housing market (and therefore home prices).

1. The Economy

Nothing more clearly affects house prices than the economy. It’s pretty easy to understand why – the harder it becomes for people to borrow and spend money, the less demand there is for expensive homes. Prices simply have to go down to ensure that anyone can buy.

Likewise, as the economy improves, prices go up as new buyers are willing to make competitive offers for their dream homes.

2. Interest Rates

Interest rates majorly impact home prices – the reason behind this is complicated, but basically, these interest rates affect the large transactions that go on in the real estate world (not just for your individual home purchase). 

Lower interest rates mean higher home prices. A recent study shows that this impact is notable – though it is more so gradual than immediate.

3. Political Conditions

Politics shape our housing market in impressive ways. There are obvious factors that affect prices – like war or national hardship. 

However, there are also more subtle changes in policy, taxes, and tariffs that can affect home prices. You can read our thoughts on how our latest administration’s actions may affect the housing market here.

4. Supply & Demand

If the supply and demand balance is off kilter, prices start to fluctuate. If there are more houses on the market than families looking to buy, prices begin to decrease. People have more options, and there is less competition in the marketplace.

On the other hand, if there are very few houses on the market, and a lot of demand for new homes? Prices skyrocket. The room for competition in the marketplace grows, and the price tag on becoming a homeowner grows with it. The  best case scenario is a healthy balance between supply and demand!

Location is one reason that explains home prices.

5. Location

Housing prices don’t just fluctuate on a national level – they also fluctuate regionally and locally. This has a lot to do with development, crime, and environmental concerns. If your area has recently added in new attractions (restaurants, movie theaters, coffee shops, etc.), home prices may rise as the area becomes more desirable. 

Likewise, if your area has recently welcomed a major oil drilling company that is causing major environmental problems, or has seen a boom in crime rates, home prices will decrease as the area becomes less desirable.

All of these factors can impact home prices. Nothing in the housing market is set in stone – as our economy, political landscape, and current events change, so do the prices of homes.

Use Home.LLC to reach 20% down, today!

Sid Samant

Sid loves building models at the intersection of economics and data analytics to help you buy your dream home. He fell in love with data science after working with big data in telecommunications. He has an MBA from NMIMS University and reads voraciously in his spare time. He is a long-suffering supporter of Arsenal Football Club. He also believes that The Wire is a better show than both The Sopranos and Breaking Bad.

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