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Why Do Home Prices Fluctuate?

Published on: August 22nd, 2019 | Written by Jimmy Vercellino

Home prices are constantly changing. You may have even heard about the housing market being in the buyer’s or seller’s favor over the years.

Naturally, understanding what causes a home’s price to go up helps you pick the best time to buy or sell a house.

While the size and location of a house plays a part in the price, it also helps to be aware of the other factors that influence price fluctuations.

How Does Supply and Demand Affects Prices?

The biggest reason behind home prices going up and down is based upon this basic economic principle. When the supply of houses goes up, you can expect the prices to go down due to a lack of competition. Locations with a low supply of houses naturally have higher prices.

In Arizona, certain neighborhoods are experiencing a high volume of interest. These areas may require you to be competitive with your bids since there may be fewer houses available to help lower the prices. This is common in urban areas with older houses that are located near popular business districts.

Some of Phoenix’s newer neighborhoods are helping to lower the cost of housing. With so many new homes being built, buyers are often able to benefit from prices starting to stabilize.

Will Home Prices Affect Mortgage Interest Rates?

Home prices do not typically affect mortgage interest rates since these are based more upon factors such as wage increases. However, lower interest rates tend to drive up prices on homes since it means that more buyers may be flooding the market.

What Other Factors Affect Price Averages?

Price fluctuations are also caused by factors such as the location and nearby amenities. People sometimes want to move to the latest new neighborhood, and this can temporarily drive the prices up. You can sometimes see this when a large corporation opens new headquarters in an area, causing a flood of employees to move in.

The cost of construction supplies and manpower can also affect home prices. Your home may cost slightly more or less depending upon the current cost for building materials. Although this tends to be a modest contributor to home price fluctuations, it can affect a substantial area during times of heavy home building activity.

Is It Smart to Buy When Prices are Climbing?

It’s always a good idea to try to buy a house when the prices are lower. However, there are times when it is still smart to jump on a home purchase even though the prices are rising. When you factor in the current rising cost of rent, a mortgage gives you stable payments that may make the slighter higher home price worth it.

Houses also tend to increase in value over time. Buying during a rising price trend can still mean that your house becomes worth more in the end than you need to spend now. Making sure to buy a house that is in good condition helps to ensure that it increases in value. You also want to get the best rates on your mortgage loan to further increase the payback that you receive on a home investment.

Waiting for home prices to hit the ultimate low may seem like a good theory, but the recent trend does not show home prices bottoming out any time soon. Instead, it is best to focus on making smart financial choices that can help offset the cost of rising home prices in the Phoenix area.

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