Forces That Affect Real Property Value

Understanding the impact of external forces on property values can help you predict trends and make an informed choice in buying or selling real estate. External forces can drive prices up or down, depending on how they impact supply and demand. While you might know some obvious factors, such as the property's location, other forces aren't as easy to spot.

Certain social trends may impact your property's value, including population, area demographics, and the neighborhood's perceived safety. Some social trends affect home values because of how they influence people's perceptions. For example, an increasing crime rate often deters buyers who want safety. A cluster of homes with environmentally friendly features, such as solar panels, taps into the trend of energy efficiency and environmental awareness. Other social trends influence property prices because they reflect current needs. Shifts in family composition in an area may make some types of homes more desirable than others. For instance, working, single individuals or couples without kids might prefer townhouses instead of traditional detached single-family homes, increasing the demand and prices for townhomes in the area.

The presence of government entities, such as local housing programs and emergency service providers, can affect home values and prices in the immediate area. Reliable and timely fire and police response may be a desirable feature for some buyers. Building codes and zoning and environmental laws impact what homeowners may do and how an area is developed. Local rent control policies might also make renting in the area more desirable than other areas, shrinking the homebuyer pool.

Economic forces on housing prices include area wages and property taxes, credit availability and interest rates, local pricing trends, and the community's economic base. High property taxes may drive people away from an area, forcing prices down. People with higher incomes are more likely to buy homes instead of rent, increasing the prices. Low interest rates and widely available credit make it easier for people to buy, causing prices to rise, while higher rates and limited credit shrinks the buyer pool, increasing home supply and lowering values.

Physical and environmental forces on property values cover easily recognizable factors, such as location, transportation availability, the local climate and landscape type. For example, a home on a busy highway is likely to suffer loss of value because of its location, but a business in the same spot may have increased value. Transportation access is important in general, but is a significant factor in an urban area.