8 factors about your house that might bring its value down

The property market is cyclical in nature, meaning that house values rise and fall over time. As a homeowner, you’d like to think that the value of your house will continue to increase, but there may be times when the value of your property drops.

The value of your property is based on a range of factors. While you may be able to take steps to increase the value of your property, there are a range of external elements which could affect the value of your home that are completely out of your hands.

Here’s an overview of 8 key factors that affect house prices.

1. Location

Location, location, location. As a homeowner or potential buyer, you’re probably all too familiar with the importance of location when it comes to house value. Suburbs that have good reputations, are close to local amenities and are within the catchment area for high-quality schools often command higher valuations and outperform less desirable areas.

On the other hand, homes that are located in less desirable suburbs can negatively affect the value of the property. With this in mind, it can be best to avoid properties that are:

• Close to high-noise areas, like busy roads, airports or train tracks,
• In neighbourhoods with high crime rates,
• Located in a poor school district, or
• Limited in access to public transport and other essential services. 

2. The economy

There are a range of economic factors that can bring the value of your home down. From unemployment rates and wages to population growth and inflation, there’s often a strong correlation between property prices and the economy. 

For example, in a growing economy with rising incomes and employment levels, people generally have more disposable income to invest, which can boost property demand and prices. In contrast, during economic downturns, job losses and lower incomes reduce purchasing power and demand, which can lead to a decrease in property prices.

Not to mention, economic conditions often influence banks' lending practices. In a strong economy, banks are more likely to offer loans, increasing buyers' purchasing power and property prices. However, when the economy takes a hit, many lenders introduce stricter lending criteria, which can reduce the number of qualified buyers, lowering demand and prices.

3. Interest rates

Another key economic factor that can significantly affect the value of property is interest rates. As we saw during the recent COVID-19 pandemic, in response to the Reserve Bank of Australia (RBA) dropping cash rates; banks and lenders, in turn, lowered their interest rates, making mortgages and the cost of borrowing more affordable. This led to increasing demand for property, which drove property prices up. 

Conversely, higher interest rates increase borrowing costs, reducing demand and potentially lowering property prices. Even a slight increase in interest rates can add hundreds of dollars to mortgage repayments, which can ultimately put downward pressure on property prices.

Have a read of our blog on how interest rates are determined to learn more.

4. Supply and demand

Property prices are heavily influenced by supply and demand. Put simply, when the supply of houses outweighs the demand, property prices tend to drop. On the flip side, when the demand for houses is higher than the supply of housing stock, property prices may increase.

5. Consumer confidence

Consumer confidence often plays a key role in determining housing value. When potential buyers are confident in the economy, they’re often happier to borrow more and spend more, helping to boost property prices.

When borrowers are worried about the economy, they’re less likely to borrow and spend, which may lead them to put off buying while they ride out an economic downturn. With fewer buyers in the market, demand for property can drop, leading to a decrease in property prices.

Economic stability plays a key role in fostering investor confidence, increasing investment in property markets and driving prices up. Conversely, economic uncertainty or downturns can lead to reduced investor confidence. In these instances, potential homebuyers are often more likely to hold onto their cash until the economy improves, which decreases investment and reduces property prices.

6. Proximity to schools

Families with school-aged children often prioritise homes close to good schools to reduce commute times and provide convenience for school drop-offs and pick-ups. This high demand from families can drive up property prices in areas near desirable schools.

Properties located near highly-rated schools tend to be more valuable because parents want their children to attend these institutions. Properties closes to high-performing schools often attract more buyers, increasing competition and driving up property prices.

In fact, a South Brisbane home lost roughly $100,000 of its value overnight when it was dropped from the Brisbane State High School catchment area. This just goes to show how much of an impact proximity to a good school can have on the value of your property.

7. Local environment

Changes to the local environment surrounding your home can also have a negative impact on the value of your property. From alterations to the street, to proposed development sites, or increased susceptibility to flooding and fires, the environment can play a key role in property value. There’s no denying that most buyers would rather live in a more appealing area which can deliver a high quality of life, so if there have been recent changes to the environment surrounding your property, it could negatively impact your house value.

8. Legal or zoning issues

Lastly, legal and zoning issues have the potential to adversely affect property prices. Problems around unresolved disputes over property boundaries, zoning restrictions limiting future development or renovations and a lack of necessary permits for existing structures or modifications all have the potential to bring the value of your property down.

There are a number of different factors that have the potential to impact the value of your property. And with many of these factors influencing each other, it can often be difficult to predict how your property will perform in the future. If you’d like to complete a house value check, you can arrange a formal valuation through a Certified Practicing Valuer (CPV).

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This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍