Understanding the Factors in Home Values
Home values are often sought out by using certain standard methods that help determine the price of a fixed asset. A median home price is most often used to compare the real estate price within different markets, periods, or areas. This amount is the midpoint of all home values in a specific area over a given time. A median price is often a strong indicator home values and their trend in the market.
There are many different factors that help determine home values.
• Structure of the home
• Area of the home in square feet
• Number of bedrooms and bathrooms
• Curb appeal and appearance
• Safe, quiet, clean neighborhood
• Good public school system
• Good police and fire protection
• Decent location (close to recreational, restaurants, and shopping areas)
• Public transportation access
• Good maintained structures such as roads and parks
• Cultural institutions such as a library
Other factors that are less predictable but still affect home values include:
• Surrounding environment, such as noise or air pollution
• Economic instability like high unemployment, high interest rates, or difficult home lending guidelines
• Neighbors that do not care for their property which lowers the market value of the neighborhood
The economy also plays a large role in local real estate. If there is greater demand, home values increase, and vice versa. When there is a strong demand, this often results in growth and many new houses are often created in order to accommodate for it.
An area that is struggling economically is likely to have lower values as well. For example, if a home goes into foreclosure, the bank will later resell the home at a lower value which lowers the home value. This results in the average sales price of the area’s homes going down.
It is often most ideal for an area’s homes to show conformity by having simile styles or types which most often results in higher home values and a maximum value in the market. Having a home that does not conform can result in its true home value not being recognized. Furthermore, a lack of conformity between homes tends to lower the home values of other homes that are in close proximity.
While home values can benefit from high competition, home values can potentially fall from this as well. If there is a strong demand for new real estate, this increases competition, raising profits. When this results in more development and building, it has the potential to create an oversupply, which will collapse the market if there are not enough buyers.
In 2000, adjusted home values were measured to have increased to nearly four times as much since 1940. The value for single family home was originally about $30,600 but 60 years later had grown to $119,600.
In this period of time the lowest median values were found in southern states such as Mississippi and Oklahoma as well as a few Midwestern states like Arizona and New Mexico. Meanwhile, western state values have increased significantly and are now constantly above the beyond the national average.