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What Causes House Prices To Fluctuate?

12:34 PM

Are you planning on selling your current home? Or are you looking to buy a new residential property? If yes, then you must know some of the factors that can cause house prices to fluctuate. While these reasons may be complex, the only benefit of knowing them is that you can buy or sell a residential property at the best possible price.

Let’s look at some of the factors that cause house prices to fluctuate.


#1. The Overall Health of the Economy

Perhaps the most significant reason that causes house prices to fluctuate is the overall health of the economy. When the economy is doing well, and that's reflected in the numbers such as growth in GDP and manufacturing activity, the economy is thriving, and there is less unemployment. All these positive economic indicators lead to an increase in house prices.

However, an economic downturn leads to unemployment, and as a result, the demand for property decreases, which reflects the lower house prices. Hence, the economy's performance is one of the most critical factors causing house prices to fluctuate.


#2. Supply and Demand for Homes

Another critical factor that causes house prices to fluctuate is the supply and demand for homes. Like every other goods and service, the supply and demand for homes determine their price. So when the supply is low, but there is a high demand for homes, it will be reflected in higher house prices. On the other hand, when the supply is high, but the demand for homes is lower, it will lead to a fall in house prices making homes more affordable.


#3. Interest Rates

One of the economic indicators for growth that has a huge impact on house prices is the interest rate. When the interest rate drops, it is easier for people to borrow money, which positively affects the buyer's ability to purchase a home. And when the purchasing power increases, it reflects in higher demand, which eventually leads to increased house prices.

However, the opposite happens when the interest rates go up. With a higher interest rate, it is difficult to borrow money for house purchases, leading to lower demand. When the demand goes down, house prices become more affordable. 


#4. Government Laws

There are a few government laws and legislations that can cause house prices to fluctuate. Some of these government laws include mortgage interest tax deduction and tariffs and import duties on housing material imported from other countries. These laws can affect the cost of borrowing and increase the cost of building new homes, which causes the house prices to fluctuate.


Several other factors may cause the house prices to fluctuate, including the crime rate in the neighbourhood, a recent surge in attractions, a new and better school, and the development of a hospital. Knowing what causes house prices to fluctuate, you are in a better position to buy or sell a residential property at the best possible price.

To learn more about the design, construction, and renovation of your current or new residential or commercial property, get in touch with Design Edge Associates.