What affects the housing market and property values?

Learning about the factors that affect the property market can be a really useful way to make sense of your house’s value.

In brief: House prices are affected by both the nationwide housing market and the local housing market.

Let’s explore both.

The nationwide housing market

This term covers what’s going on right across the country (not just in one specific area). Are people buying houses in the UK or is there, for some reason, a slowdown?

To sum up the factors affecting this it comes down to the basics of economics = supply and demand.

Without going too deep we’ll delve in a little further and it will all become clear:

If there are more buyers than sellers in a market then values will go up. This is true of any marketplace and particularly true of the property market. Due to the lack of sellers buyers have fewer choices (they might only see 1x property they like), so they’ll pay more to beat out other buyers and get it = prices go up.

On the other side, when the market has lots of sellers they often end up ‘competing’ with other sellers. The buyer has plenty of options, so a seller might have to discount in order to make it more appealing and get their property sold, which lowers prices.

So your next question might be ‘What affects supply and demand?’ Here’s some of the major factors:

1. The Economy

Economic growth means rising incomes, so people have more money to spend, often prompting a move.

With more people wanting to move the demand for houses goes up, leading to price rises (as explained above).

On the other hand, when economic growth slows people have less money to spend. Less moves = less demand = lower prices.

2. Unemployment

It probably goes without saying but people out of a job won’t be looking to move (they wouldn’t get a mortgage for starters).

Even just the fear of unemployment can have an impact, people don’t make large financial commitments when their income is at risk.

Once again, less demand for houses = lower prices.

3. Bank Interest Rates

When interest rates are higher the costs of mortgage repayments are higher (making them less affordable).

Simply put, if people can’t afford a mortgage they’re not going to move home.

Example: The early 90s had a spike in interest rates which led to a very steep fall in UK house prices.

On the other side, if interest rates are cheaper people can borrow more money, leading to greater demand for housing and higher offers made.

More demand = higher prices

4. Consumer Confidence

This boils down to the future predictions average people are thinking about the factors outlined above.

If they’re confident about their job and the future affordability of mortgages they’re more likely to make a move and make larger financial commitments.

More demand, higher offers = higher prices.

If people are worried the opposite is true. There will be less buyers and sellers might have to discount in order to get their property sold.

What’s important in the local housing market?

In addition to what’s happening at a national level there are local factors in the specific area you live in that influence house prices.

Transport and services

1. Local transport

Good road & rail connections make a big difference, allowing smoother commutes into the city (typically where most of the jobs are).

Local infrastructure developments (such as HS2) can have a profound effect on the value of properties throughout the country for this reason.

Obviously if your house is right next to a road or rail line this can sometimes have a negative effect, but this accessibility can be equally seen as a plus, which helps to balance it out.

2. Local Schools

Education is a big focus for families, so it’s a major selling point when it comes to selling if you own a family home.

The Ofsted reports on local primary and secondary schools will be a determining factor, the better they are the more influence it can have.

3. Local Amenities

Facilities such as supermarkets, cinemas, and gyms typically make living in an area more desirable (unless the buyer is looking for a real country-living lifestyle).

A report by Lloyds evidences that having a supermarket by your home can in fact seriously boost its value by as much as 15% over a 4 year period.

The property itself

4. Property Condition

Most people don’t want to carry out home improvements themselves (and don’t want the expense either), so if they have a nice home to live in from day one this can bump the price vs another house that needs work carried out.

5. Property Size and Layout

The more square footage of livable space the higher the price. Bedrooms and bathrooms are examples of livable space - garages and attics aren’t.

The layout of the property also comes into play, the more desirable the better.

Three of the most common requests are:

  • Having a bathroom close to the bedrooms (a 2nd bathroom, ensuite or cloakroom can also help prices)
  • Open plan kitchen-diner (these are broadly popular)
  • A porch or hallway (rather than stepping straight into the living room)

6. Property Features

E.G double-glazing (or decking in the garden) can influence eventual sale price.

The more desirable the feature and the fewer houses that have it the greater the premium you can command.

7. Parking

This has a real effect on the value of the property. It could be a driveway, a garage, or a carport, they’re all desirable (especially since it can affect car insurance premiums).

Failing on-property parking, the next best thing is on-street parking, the more the better.

Other factors

8. Flooding

According to a recent study, properties located within a recently flooded area could see a fall in value of up to nearly 25% depending on where they are situated.

Whilst the obvious impact is fairly obvious (no-one wants to live in a flooded house) the costs to insure are also very high.

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