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What affects the value of your home?

What do you think your home is worth today if you had to take a guess? And how would you find out what it’s actually worth to check your estimate and see how close you are?

As a homeowner, it’s important to know WHY the value of your home goes up and down in addition to actually knowing it’s current value.

Understanding the factors behind the real estate market will help you in buying or selling decisions.

This also applies to real estate investors as well. You want to buy an investment property that you believe will go up in value over the long term.

Are you ready for the short and simple answer to the question “what impacts real estate prices?”

Answer: Usually economic factors impact the value of your home.

But let’s get more detailed in our guide to home values below..

And first, let’s talk about the Zillow Zestimate because many homeowners and investors rely on this estimate of value when in reality… is it really that accurate?

How Do Economic Factors Affect My Home’s Value?

When economic growth occurs, people have more money to spend thus are willing to pay more for housing.

Economic growth in cities can also cause population migration.

People move from city to city for job opportunity. New college graduates chase jobs in these cities as well.

If you think about the development of a city, there is only so much land.

One part of a city will usually be a business district, employing thousands of people and drawing in more people over time who want to move from one city to another for employment opportunity.

Another part will be neighborhoods, another will be schools, and so on. People generally want to live in safe neighborhoods and close to good schools for their kids. Others may desire to live close to work for short driving time.

Population migration is one of the main influences on home prices because over time different real estate becomes more or less attractive to people.

It becomes a game of demand and supply.

There is only so much housing in a city and if an influx of population migrates into a city during economic growth, there is a strain on supply pushing prices higher.

When populations migrate out of a city, like in Detroit, housing prices fall because demand is no longer there to support increasing prices.

Let’s look at the following economic factors now that you understand how population migration makes supply and demand for housing change every month in a city.

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6 Factors that Influence Home Values

Economic growth.

Demand for housing is dependent upon consumer income.

With higher economic growth and rising incomes people will be able to spend more on houses; this will increase demand and push up prices.

In fact, demand for housing is often noted to be income elastic (luxury good); rising incomes leading to a bigger % of income being spent on houses.

Similarly in a recession, falling incomes will mean people can’t afford to buy and those who lose their job may fall behind in their mortgage payments and end up with their home being repossessed.


Related to economic growth is unemployment. Clearly when unemployment is rising, less people will be able to afford a house.

But, even the fear of unemployment may discourage people from entering the property market.

Interest rates.

Interest rates affect the cost of monthly mortgage payments.

A period of high interest rates will increase cost of mortgage payments and will cause lower demand for buying a house.

High interest rates make renting relatively more attractive to buying.

Low interest rates make purchasing a home more attractive, increasing demand and thus increasing home prices.

Consumer confidence.

Confidence is important for determining whether people want to take the risk of taking out a mortgage.

In particular expectations towards the housing market is important; if people fear house prices could fall, people will defer buying.

On the flip side, people who fear mortgage interest rates may rise, will purchase today to lock in lower interest rates and save thousands of dollars in interest over the 30 year mortgage.

Mortgage availability.

In the boom years of 1996-2006, many banks were very keen to lend mortgages.

They allowed people to borrow large income multiples (e.g. five times income). Also banks required very low deposits (e.g. 100% mortgages).

This ease of getting a mortgage meant that demand for housing increased as more people were now able to buy.

However, since the credit crunch of 2007, banks and building societies struggled to raise funds for lending on the money markets.

Therefore, they have tightened their lending criteria requiring a bigger deposit to buy a house.


As construction companies build new homes, supply is increased to support the demand. While supply lags behind, housing demand pushes up home prices.

How To Analyze Your Housing Market

Now that we discussed the economics of single family homes, you can apply those economic concepts to your analysis of the housing market you live in.

Look around your city at which neighborhoods people desire to live in for starters.

What is the housing market?

The housing market is where buyers and sellers come together to exchange money for real estate.

In hot markets, values are rising which is good for sellers and makes it tough for buyers to get in at a decent price without overpaying. In down markets, buyers benefit and can buy property cheap from sellers.

There are different types of investments you can purchase in the housing market. Here is a more extensive list of the possible assets available for purchase in your market area:

Single Family Detached Houses – a home separated from any adjoining house with at least some open land on all four sides. It remains the most sought after type of property by Americans.

Patio/Zero Lot House – very similar to the detached single family house except construction is from lot line to lot line with an outdoor living area in an interior garden court.

Single Family Attached Houses – an attached row of houses that share common walls with its neighbors and is quite common in eastern and western cities.

Town Houses – Similar to the attached row of houses, each unit has its own front door but it shares one or both side walls with adjacent houses. It may have a front or rear yard but no side yard.

Condominium – an individual unit owned by a single owner, but shares the common areas of the building with fellow unit owners. Allows for a maintenance free style of living as the association is responsible for maintaining the landscape and common areas of the property.

Second Homes/Vacation Homes – used for leisure and enjoyment time. Certain locations such as beaches, mountains, and golf courses or ski lifts give higher value to these homes making them highly sought after for vacation homes.

It’s important to know what the housing market is up to when buying or selling real estate, for example, if you were to buy an investment property right now is your market hot or cooling off in home sales these past few months?

Analyzing the housing market will tell you what home prices and sales are up to so you can make smarter decisions and hopefully time your purchase or sale of investment property correctly.

If the market is hot, and you’re looking to cash out on some of your properties to receive the equity you’ve built up in them, then you’d want to sell.

If prices are starting to decline, you might hold off and purchase in several months at lower prices.

In order to analyze what the housing market is up to you need to look at several metrics listed below.

Checklist of Housing Data to Research:

  • What is average sales price?
  • What is the median sales price?
  • What is the average time on market for properties?
  • What is the current number of month’s supply of housing?
  • What’s the absorption rate?
  • What’s the level of new construction that is occurring?
  • Where are the newer houses located? Year 2000 or newer?

To find this information you’ll have to do research online.

You can look up your local county auditor’s website and find some housing data for your city.

You can contact a real estate agent to run reports for you using the data that they have available to them.

You can find research and data reports published online to the web by Google searching your city name.

If you live in a big metro city such as LA, New York, DC, Miami, etc then it will be easier to find recently published market updates on the housing market in these cities.

You’ll also want to look at other demand factors that can change in the near future and affect housing prices:

  • Employment
  • Disposable Income
  • Population
  • Household Characteristics

How to Find Economic Information For Your Housing Market?

I personally use It’s a handy website for pulling all kinds of different data so I’d recommend checking it out. Here’s a list of what you should research:

  • Income
  • Price to Income Ratio (median house price to median income of city)
  • Price to Rent Ratio = buy when below a 15 and rent when above 20
  • Unemployment rate
  • What companies conduct business in that city
  • Demographics (age of people, breakdown of jobs (are there a lot of lawyers and doctors)
  • Job growth
  • Market rent
  • Cost of living (what’s gas prices, food index, taxes, etc)
  • School systems
  • Where are the family neighborhoods/popular neighborhoods
  • Price map of city neighborhoods, what costs what.

After determining the past and present housing market conditions the important part that remains is determining the future demand and supply of the market and the affect each will have on the housing market prices.

How is your city’s transportation structured? Does your city have reach to a large population as a result of trains and bus systems?

Will future tax code changes affect the demand for housing in a certain areas and school districts of your city?

I challenge you today to look up your city or county tax budget and see how they are calculating your property taxes.

What projects are they using your property taxes to pay for? How are they assessing the value of all the homes within that tax district? What’s their millage rate?

Thanks for reading. Here are more resources below to take advantage of!

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