What all Determines a Home's Value?

All over the country, housing prices are soaring and markets are on fire, which may be leaving you wondering how exactly housing prices are determined and what affects these markets. Those are good questions! There are several factors at play when it comes to determining the value of a home — let’s explore them.

Housing Price Index

The House Price Index (HPI) measures the movement of home prices, namely single-family homes. This information is determined by measuring average price changes in repeat sales and refinancing on the same properties. (Only homes with mortgages secured by Fannie Mae or Freddie Mac are part of this data, so homes bought with cash are not included.) HPI is mostly used to monitor trends and is often called upon by housing economists, mortgage brokers and banks to estimate house affordability and overall market health.

Factors Affecting Real Estate Prices

There are several factors that shift home prices and values, including demographics, the government, the economy and interest rates. Demographics — such as age, race, income and gender — can be an often overlooked factor that has had an overarching effect on real estate for generations. One of the best examples of how demographics affect the housing market can be seen in the aging Baby Boomer generation. Much of this large segment of the population has settled into retirement, which has shifted markets all over the country and upped sales of smaller homes. Investors also look at demographics when determining where to purchase additional properties, because following these trends can lead to higher potential for return.

Another important factor in determining the health of a real estate market is the economy in general. When the economy is strong, so is the housing market, and when it’s struggling, so do home prices. Government policies have a similar effect. Legislation that directly impacts facets of the real estate market, such as tax credits and deductions, can encourage growth on a broad scale. These incentives, especially tax credits, can encourage people to buy homes, in turn increasing market prices.

Average Mortgage Interest Rates

Interest rates are extremely important to the health of the real estate market. The amount of interest owed over the life of a loan has a dramatic impact on buying power and can essentially make or break a person’s ability to purchase a home. When interest rates are lower, markets flourish. When they rise too high, sales and prices decline. It’s essential for potential home buyers to research the current rates and shop around for the best mortgage to ensure that a particular home is affordable over the life of the loan.

What The Future Holds

Although it’s impossible to know exactly how a market will fare in the future, it's possible to make an educated guess based on the factors mentioned above. The friendly and knowledgeable mortgage experts at InTouch Credit Union are a great place to start if you're looking to buy a home. Contact one of the InTouch Credit Union mortgage representatives to get the answers to any questions you may have about rates and home prices so you can get started on the right path to home ownership.

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