What Affects the Cost of Housing?

Housing prices fluctuate from year to year. Sometimes they rise and sometimes they fall. The general trend is upward, but the recent collapse of the housing bubble shows that the unexpected can cause a drastic fall. Housing prices are still depressed, but they are on the rise. What factors influence the price of housing? How can you guess whether prices will rise or fall? Here are the major factors that contribute to housing costs. You can research these factors online or with your local city archives. This historical data will give you an idea of the trends, upward or downward, that a particular area faces. This helps you decide whether to jump on a purchase or wait a few years for further decline.

  • Jobs. If you were to move from your current location, what would be a deciding factor? Chances are your answer is a job. Most people move to find a job. The presence of jobs, the growth of the job market and the diversity of available jobs are all important. A place like silicon valley is great for IT professionals, but other professionals may avoid the area. If, somehow, the computer field collapsed, silicon valley would suffer a housing collapse. Job quality is important as well. An area with high earning jobs will see higher housing prices than an area where fast food jobs are the norm. Areas with incoming industries with high growth will experience increasing housing prices. For the reverse, simply look at Detroit. When the auto manufacturers went overseas, the Motor City collapsed
  • Housing availability. You can’t buy a house if a house doesn’t exist, after all. If there is a low density of housing, and no one wants to sell, no amount of saving will get you a house in that area. When a house does become available, it will command a premium. On the other hand, an area with a large amount of vacant houses will see lower housing prices. People building suburbs and condominium complexes will drive down housing prices in the area. Look for a vacancy rate of around five percent for a housing market with prices on the rise. A vacancy rate around ten percent is more likely to be a buyer’s market, where you can negotiate a nice low price
  • Listings versus sales. An area where a large number of homes are listed for sale but few of them are actually selling creates a buyer’s market. Sellers are desperate to sell their homes, so buyers are free to negotiate a lower price for an ideal location. Conversely, an area with a falling number of new listings indicates high demand for the housing in that area. Few listings and high purchase rates lead to a seller’s market, where the buyer has much less room to negotiate and prices will rise
  • Comparing rental rates. Investigate local rental prices. While you’re at it, figure how much it would cost monthly to actually own that property. Ideally, you will buy when the cost to own is roughly the same as the cost to rent, if not cheaper.

Finding a Deal on Housing

Negotiation is a complex task. You need to consider a whole range of factors that will influence the sale price of a home. Looking for deals is simply the first step.

Beware the discount offers. Real estate agents and private sellers sometimes advertise that a home is being sold for “50 percent off!” or at a huge price reduction. The question you should ask yourself is why the price was reduced that much. Was it simply overpriced to begin with, and the reduction is designed to draw in new buyers? Is there a major defect in the home that makes it less attractive to buy? Chances are a house with such a discount will have some compelling reason to avoid it.

Identify ways to add your own value. You might not be able to get a great deal on the house itself, but if you can identify a few ways to add value, you’ll be able to boost your equity quickly. This can be as simple as a fresh coat of paint and some new flooring. It can be as complex as a large addition or remodel. Of course, if you’re pushing your budget to the limit to see the house in your price range, you need to be wary about investing in improvements you can’t afford.

Buy when buyers are scared. A depressed housing market wards people off. Why would they want to buy a house when house values are falling? Smart buyers know that the price will improve over time, especially with a little work. Think of it like shopping for discounts at a retail store. Figure how much the monthly cost of buying the home would be, and look for a cost that’s in line with or lower than local rental costs. Look for the beginnings of an incline in home sales, which indicates that prices have reached their bottom. Of course, look for any improvements in the job market, which will attract more buyers.

Scout the sellers. A motivated seller has a reason to sell the house, and will strike a deal to get it done. Some houses are owned by banks or managed by real estate agents with a lower motivation to sell. These sellers will try to get the best sell prices. You’re looking for sellers who need to move, need to downsize or otherwise want to get out of their home as soon as possible. They’ll cut you a discount just to be rid of the home. Of course, do a home inspection to make sure they’re not running from a critical flaw.

Pick a good neighborhood. It’s rare that a good neighborhood turns into a slum. Good neighborhoods tend to stay good, and that means a solid level of housing prices. Drastic changes to the area or the job market can change this, of course, but you can’t hold off just because you want to predict the unpredictable.

Picking the Perfect House

Shopping for the perfect vehicle is touch. Picking the right job is extremely difficult. Deciding the best way to spend your evening may take all night. What does that say about picking the place you’ll live for a decade or longer, up to the rest of your life? You need to consider a wide range of factors before you even look at a single property.

Unless you’re fabulously wealthy, you’ll have a budget limiting the places you can life. If you can only afford a $300,000 home, you’re not going to find a home in the heart of a city where property values start at $750,000. On the other hand, you don’t want to start your search with average property values of $50,000. The quality of the neighborhood goes a long way towards setting its value and sale price. What characterizes a good location?

  • The local economy. A strong economy means a good area. A poor economy means a maze of sale signs and a bunch of unemployed neighbors
  • Access to amenities. If you like to bike, does the area have access to trails and bike paths along roads? If you’re a sports fan, can you easily access arenas and stadiums? If you’re an outdoorsman, are you close to a lake, river or park?
  • Schools. If you’re thinking of raising a family any time in the next two decades, consider your access to schools. More importantly, consider the quality of those schools. Expensive private schools will cater to more expensive areas, while the lowest income neighborhoods are relegated to under-funded public institutions
  • Crime rates. Everyone considers crime rates, and for good reason. High crime rates lower property values, not to mention adding the risk of becoming a target of those crimes yourself

Types of Homes

The style of architecture you prefer may not have a huge effect, but the type of building certainly does. Here are the various types of residences you may be looking at, and their advantages.

New construction detached homes. These are the houses that were built for sale. No one has lived in them before you. They are full of modern amenities, built to satisfy the modern buyer. They’re built up to modern codes as well, meaning they’re not going to be full of lead paint, asbestos, faulty wiring and ancient rodents. They tend to have high energy efficiency, and many may come with green amenities. Of course, new construction is only as good as the builders. Always get a home inspection, even on new construction. You never know what problems are hidden by a fresh paint job.

New construction can be misleading. Typically, you’ll visit a suburb full of identical homes, and you’ll be taken through a model home on tour. It’s beautiful, fully furnished and laid out professionally. The home you end up buying has no furniture and none of the bright, attractive colors. Prices are also less negotiable on new construction. You don’t have leverage of a motivated seller or a poor appraisal.

Used detached homes. These homes have been owned and lived in for years before you. It might be new construction from last decade, or it might be two centuries old and adapted to new technology. Used homes are typically less expensive, because they lack significant construction labor expenses. You’re also able to negotiate with the seller and use various sources of damage as leverage. Of course, that means you need to handle that damage yourself. Ideally, a used home won’t have large maintenance and remodel tasks to take care of before you move in.

Used homes are also, well, used. They may have old damage that was hidden from inspectors and old residents. It may be laid out in a form over function design — high ceilings that raise your heating bill as well, old insulation that has lost potency over the years, etc. Floor plans might not quite work with modern appliances, and you may find yourself using the word “compromise” more than you prefer.

Condominiums. a condominium is a single building with multiple units. Picture an apartment building — multiple units with similar layouts in the same attached building. The difference between an apartment and a condominium is the ownership. A landlord owns an apartment building and the tenants rent from them. In a condominium, each unit is owned by the person inside it. Condos are generally cheaper than detached housing, so you can get more condo for the price of a detached home. They also cost less to maintain, since external maintenance tasks can be split amongst the other residents. They often come with other amenities as well, such as pools and gyms attached.

Like apartments and dorms, however, condos offer a lack of privacy. You’re only separated from your neighbors by thing walls and ceilings, which can lead to quite a bit of noise. For maximum privacy, hunt out a top floor corner unit, but expect a premium for the privacy.

Condominiums also have complex legal, financial and social ramifications. If a legal issue occurs, you have to deal with property lines, shared space rules, other tenant concerns and a whole labyrinth of legal rulings. You may find odd restrictions on your condo usage or fees. A few rules are fine, to regulate noise and safety. Too many rules, however, and you may feel more like a prison than a home.