The property market can be affected by many things. While lower home prices can be ideal for first-time buyers or newcomers to the market, they can also negatively affect sellers and short-term investors.
Let’s examine some of the types of homes that are set to decrease in value over the next few years and what could be causing these depreciating prices. This could be hugely important for first-time buyers or sellers, so read carefully!
Condos and Urban Apartments
While many used to think of condos and apartments as the ideal investment for retirees or younger folks living in the city, the truth is that times have changed. Many more people are working remotely, which generally means they no longer have to live in crowded towns and cities, thus driving down the sales of apartments.
While this might be good news for buyers interested in the market, it could be a warning sign to potential short-term investors.
Vacation Homes
While many can’t afford to buy a vacation home or second home, this reduced rate of purchasers could likely reduce the cost of homes like this in remote areas, according to licensed realtor Alex Capozollo of Brotherly Love Real Estate. While this might not be ideal for all investors due to distance and lack of available services, it could be a good way to buy a cheap home for those not affected by work-time commutes or looking to settle down somewhere out of the way.
Aging Suburban Homes
Developing newer suburbs and exurbs has proved highly profitable for developers in recent years. As a result, the price of these homes has become more affordable. This means that older suburban dwellings could likely undergo significant price cuts in the coming years to remain on par with the demand for newer suburban dwellings, according to Martin Orefice, CEO of Rent to Own Labs. This could be great news for new investors, as ‘fixer-uppers’ can often be a significant investment.
Some Luxury Properties
A luxury property is any property marked as roughly two to three times above average market costs. In recent years, the demand for properties of this nature has increased. Due to factors like a high interest rate, fewer sales, and a smaller pool of available buyers, these properties’ prices might be reduced, according to Capozollo, to meet market demands. This could mean finding a great deal on a luxury property in the coming years, so keep your eyes peeled if you have the budget.
Why Are Prices Dropping?
The property market is often considered a tricky market to gauge. According to ICE, a mortgage technology firm, property market prices have decreased from 1.6% in May to 1.3% in June of this year. That’s a significant reduction in property costs that has investors eyeing the market for different reasons. Let’s examine what these reductions mean and what could be causing them. They could affect you directly as a homeowner or new investor.
High Interest Rates and Mortgage Costs
The high interest rate leads to higher mortgage costs, making it harder for people to afford homes. According to Bank of America, the current 30-year mortgage rate is around 6.75%, and the prime rate (which banks use for many loans) is 7.50%. This means that many sellers are forced to lower their prices to meet the market’s demands and expectations. This could be great news for buyers, but bad news for sellers and short-term investors.
High Unemployment Levels
With the growing rate of unemployment, many people are uncertain about their future in the job market. Due to this, sellers are being forced to renegotiate their prices as a means of being able to market more affordable houses to people. Bankruptcy could also lead to bank auctions, which tend to sell off properties for a lower rate to cover losses. This could create the ideal marketplace for first-time investors or long-term investors, as you could find a really good deal on a house.
Increased Supply of Homes
Developers have recently been very successful in developing newer housing complexes, suburbs, and exurbs, and the rate at which these developments occur has increased. As a result of this increased housing supply, the price of the homes on offer tends to get lower. This means you could pick up a newer home in a safe development for an excellent price. You have to shop around and time the market well, but it could lead to being hugely profitable.
Reduced Demand
While developers seem to be churning out properties at an alarming rate, buyers tend to be more skeptical. Economic uncertainty and high mortgage rates cause many buyers to hesitate or forgo the option of buying. The current imbalance in the marketplace (lots of homes, fewer buyers) means that many sellers are forced to reduce their prices to find a suitable buyer. It’s a tricky balancing act, but knowing how to understand it can really benefit a first-time buyer.
Where to Look?
According to Newsweek, places like Dallas, Austin, Oakland in California, and Jacksonville in Florida experienced some of the most significant drops in home prices. The range is anywhere from 2.1% to 6.7%, with Oakland, California, seeing the highest depreciation rate. While it may mean packing up and moving quite far for some, for those unaffected by the daily commute or interested in these areas, this could prove to be a huge saving.
Ideal Time To Buy
If you are in the market and have the cash to afford a home, or are secure enough to take out a mortgage, now might be the ideal time to buy. For those interested in selling, it’s a little trickier to gauge. Depending on your area or the type of home you have, the price could continue to drop or could even start to rise. Watching the interest rate and property index is a good way to understand which way housing costs will be heading. If you enjoyed this article, feel free to check out more on our site.