Buying a home is often the largest financial decision you will make in your life. In an ideal world, the price of your home would increase year over year. But, in the real world, the value of your home can decrease. As a homeowner, some things can cause the market price to decrease. Some of these things, like natural disasters, are out of your control.
Here are 3 threats to your property’s value:
1. Increasing Mortgage Rates
With lower interest rates, buyers have more money to spend on fixing up their house due to their monthly mortgage payments being lower and paying less over the lifespan of the loan. But, as the interest rates increase, home affordability for buyers decreases as well. They can’t afford to spend as much because their monthly mortgage payments will be higher and they’ll pay more over the life of the loan.
Mortgage rates not only impact the buyer, but also the sellers. Your home isn’t as valuable because people have to pay the higher rates. With higher rates, fewer people may be able to afford your home. Ultimately, you may have a harder time selling your house at the current list price with higher mortgage rates.
2. The Environment
Unfortunately, natural disasters can also negatively impact your property value. Natural disasters like hurricanes, tornadoes, wildfires, earthquakes, tsunamis, mudslides, and floods can strike without warning and wipe out entire communities.
However, it doesn’t have to be a catastrophe to decrease your property’s value. For example, when you bought your home you may have not needed flood insurance. A hurricane could have hit your area and caused a flood in your town.
The result: the flood zone maps will be changed and require you to carry flood insurance, causing an impact on the value of your home because people will hesitate on purchasing a home in a flood zone. So, not only do you have to worry about repairing damage caused by a natural disaster, but you have to also worry about being able to sell your home when you do. Buyers are very apprehensive about buying property in an area hit by a natural disaster.
But also, if you live near a landfill, or a powerplant, your home price could decrease. A University of California at Berkeley study showed that the construction of a power plant within 2 miles of a home reduced its value 4% to 7%.
3. Foreclosures and Short Sales
Having foreclosures and short sales in your neighborhood can decrease the value of your home. If a similar home to yours sold for $500,000, and another one sold for $525,000, but a third home was foreclosed and sold for $250,000 – the foreclosure impacts the comparable prices and could decrease the appraised value of your home. If the neighborhood has a lot of foreclosures and short sales, possible buyers may hesitate to purchase a home in the area. If the buyer was still interested, you may have to work with them to negotiate the price down.
Property values will fluctuate throughout your ownership. There are additional factors for values rising and falling. Check out our ebook below for a guide to find out what they are and how to increase your property value.
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