Owning a home is a dream for many, so what affects how much that goal costs?
No matter where you look, house prices have been booming despite initial concerns the COVID pandemic would dent them.
Much of this has been fuelled by record low interest rates, a fear of missing out (FOMO) from first home buyers, low levels of supply on the market, and government incentives for home buyers.
So how does all this affect property prices? And what other factors drive property prices?
Factors influencing residential property include:
The location of your property is arguably as important, if not more so than the property itself. Environmental factors affecting property value includes proximity to a CBD, affluent neighbourhoods or desirable landmarks like shopping centres or the beach are all factors that can increase a property’s value. In contrast, proximity to a jail or an airport, or residing in a low-socio-economic area will drive a property price down.
Properties in suburbs with high crime or unemployment rates are typically cheaper than properties in good suburbs. While this can be a good thing if you’re looking for an affordable entry level property, it also means your property is less likely to rise in value over time - not to mention you could be living in an unsafe area.
If a publicised crime has recently happened in your area (like a homicide) the value of your property can be impacted. A study by the University of Technology Sydney (UTS) found that property prices can be hit by as much as 3.9% in the year after a murder. If a murder were to happen on the premises, it’s likely the value of your property could fall further still or just not sell.
The performance of the market in your suburb also has an impact on values. If there’s a lot of stock on the market and little demand, you can expect properties will sell for well under the asking price causing values to fall as a result.
It’s not a secret that school catchment areas (where you must live to have your children automatically enrolled) can have a huge influence on property prices. For many parents looking for a family home, it can be worth paying a few thousand dollars more if it means they can be within a catchment area of a top local school. If you’re not within that school catchment area, you can still apply for that school but you’re not guaranteed a place, which is why properties in good school zones often fetch a higher asking price.
Proximity (or lack thereof) to public transport is another important factor that impacts a property’s value. Properties that are closer to bus, tram and train stations will be more in demand from workers, families and students, therefore driving up the price.
The population and demographic of the suburb a property is in can greatly affect its value. For example, if you live in suburbia which is family dominated, three and four-bedroom homes will be more expensive. While in CBD areas, one and two-bedroom apartments will be more in demand from workers and students.
One of the main things buyers, sellers, and investors are all interested in is how many bedrooms and bathrooms there are; quite simply because the more there are, the more expensive the property will be. In addition to this, things like garages, pools, backyards, air-conditioning, patios, balconies, the list is endless, and it all factors into a property’s value. Facilities are also important when considering location: a city apartment will add value if it has a parking space, while a suburban home with a large backyard is perfect for families, and again adds value.
Your mum may have taught you never to judge a book by its cover, but most people do judge a house by its street appeal, so you can bet this will have an impact on the value of the property. While we should respect our elders, an old home is typically less valuable. Very few people want to live in a home that looks rundown on the outside, even if it is lovely on the inside.
So what adds value to your house? Luckily even the most simple fixes like a fresh coat of paint, a new fence or a nicely maintained garden can help drive up the value.
When buying a home many people want to make it their own, sometimes in the form of a minor or major investment. If there’s space to add a pool, another bedroom or even another storey, the property becomes more attractive and valuable.
If a home can be renovated to add value and later sell then that becomes attractive to an investor. Similarly, investors will be drawn into properties that are in an area tipped to expand or rise in value, or will be popular among renters.
With more people working from home and workplaces seeing the benefits, this may be the new norm even when the coronavirus pandemic has subsided. That means more of a strain on utilities and, as a result, higher bills. Solar panels add value to a property as do energy-efficient light bulbs and appliances. In addition to this, high-quality materials will make a property easier to heat and cool, adding further value.
The property market has been the bright spot of the economy in the last 12 months and this is in part, due to RBA cash rate cuts. When the RBA cuts, home loan interest rates tend to fall, which makes it more affordable to buy a home. This incites demand which can push property prices up. By contrast, when the RBA raises rates, mortgages become less affordable.
There are many economic factors affecting real estate. Things like unemployment, wages, population growth and the Aussie dollar all affect how much money everyone has and consequently, how many people can afford to buy a home.
‘Supply and demand’ drives prices in any market. If there’s a high demand for homes in a location, then expect the values to increase. If a particular area has an oversupply of properties but not enough buyers, then prices tend to go down.
All of the factors above are what typically affect property prices but we’re living in unprecedented times and no one can confidently predict what will happen in the next six months.
Although many lenders have tightened lending restrictions, if you’re in a secure job and looking for a home, you’re in a good position. The current property prices coupled with low market activity give buyers a great deal of negotiating power.
A property report will provide you with extensive information about the property you are planning to buy or sell. Apply for a free property report.
A home that is energy efficient is actually likely to have higher value, so items like solar panels, insulation, double glazed windows, solar hot water systems and so on will add value to a home.
Capital value includes the value of a parcel of land as well as any improvements on that land, such as the property.
There are many factors that can cause house prices to rise, such as the performance of the economy, housing demand and market performance, and what’s happening with interest rates.
A market valuation is an estimate of the current price of the property in the market and is often completed by a real estate agent. The value of the property is based on market trends and recent sales of similar properties in the area.
A lender valuation is performed by a certified valuer who considers the value of a property over a longer period of time. Lender valuations are often more conservative and are used to assess the value of the property in order to calculate how much money they can lend to you.