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What Causes Home Prices to Fluctuate?

Published January 28, 2020

The real estate industry and the marketplace can be tough to follow and understand. Median housing costs can fluctuate significantly for a wide range of reasons and cross-contributing factors. It is crucial for homeowners and potential homebuyers to have a basic understanding of the factors that contribute to varying and changing home prices.

The following factors can have significant impacts on housing prices in the real estate market in your area.

The Economy

The overall health of the nation and the world economy can have as big an effect on home prices as any other factor. Changes in economic factors can happen overnight for reasons that are sometimes hard or impossible to identify. Most fluctuations in housing market prices result from a combination of contributing factors.

Some markets are more dependent on specific sectors of the economy than others. Keeping up on the latest economic turns will help homeowners and homebuyers better navigate the complicated and ever-changing real estate market.

Some economic indicators that help determine housing prices include:

  • Gross Domestic Product (GDP), determined by the combined value of all goods and services on the market
  • Employment numbers
  • Manufacturing industry activity
  • Average pricing of goods

The prices for homes typically will rise when the economy is going well, and unemployment is down, and prices fall during economic downturns and increases in unemployment. The 2008 housing bubble caused by a recession is a prime example of housing prices depreciating due to economic conditions on a national level.

Supply and Demand

Supply and demand work the same way in the real estate industry as it does for commercial goods and services. Bidding wars can happen during what is considered a seller's market when supply is down, and demand is rising. A buyer's market will see a dip in home prices when demand dips, and the supply of homes is high. Seasonal trends can also impact home prices in certain areas.

It is important for prospective homebuyers or future sellers to keep an eye on the market and watch for fluctuations in the supply and demand for home sales. Major news in the industry is regularly reported on major media outlets. The number of for-sale signs throughout the neighborhood can also indicate a more local state of supply and demand in the community.

Interest Rates

The Federal Reserve is the country's central banking system and was created by Congress in 1913 to provide a safe and stable national monetary-financial policy. Actions the "The Feds" take can result in higher or lower home loan interest rates in order to provide some stability to the nation's economy, which has a direct relation to the standards set by mortgage lenders. As interest rates drop, the cost of mortgages goes down, which increases housing demand and prices. Lower mortgage rates serve as an incentive to homebuyers to take out loans. Conversely, as interest rates rise, so do mortgage payments, causing homes to be less affordable than during times when the rates are lower.

An online mortgage calculator can help determine how changes in interest rates can affect your monthly payments.


The prices of homes can vary significantly depending on their location. Communities change and evolve for a wide range of reasons and so do housing costs.

Highly populated areas such as metropolitan downtown areas and thriving affluent suburban communities will see higher demand and higher home prices. Homes in rural areas of comparable sizes and styles will see lower prices. Areas with rising home prices typically will see an increase in entertainment and restaurant options, top quality schools, and other attractions. Lower crime rates, highly rated hospitals, and close proximity to major highways can also contribute to higher home prices in particular areas.

Areas with an influx of employment opportunities from large corporations moving in can also see spikes in home prices. On the other hand, if larger businesses begin to leave, and the community's infrastructure sees signs of decline, the demand will go down, and housing prices will fall.

Laws and Regulations

Government policies and legislation can have a significant impact on the health of the real estate market and housing prices. Economic stimulation packages affect home prices and the housing market in general, depending on how the details of the policy and how successful it becomes.

Laws directly impact the way realtors, buyers, and sellers do business. The Dodd Frank Act sought to put a stop to the kind of reckless lending that brought on the real estate crash in 2008. If the act is repealed, as the current administration is currently looking to do, it can once again have an incredible impact on the industry and people's ability to purchase homes, whether they can afford them or not.

Homeowners can use tax breaks like mortgage interest deductions on loans less than $750,000, which helps to create incentives for prospective homeowners to buy. Tariffs on steel, aluminum, and lumber, and other building materials acquired from foreign suppliers can increase the cost of construction, which will affect home prices.

Home Prices Fluctuate for Wide Range of Reasons

There are no definitive answers on crystal balls. Home prices can change nationally or regionally from any combination of the factors listed or other unknowns. While it is not an exact science, the more information you have, the better you are able to anticipate fluctuations and understand why it has changed.

The proliferation of eCommerce sites into mainstream sales applications has also impacted the real estate market. Traditional on-site realtor work has been replaced with digital communication and online applications, making it even tougher to predict real estate trends and housing prices from year to year.

A complete understanding of the real estate market and the price fluctuations will help make it easier to determine the best decisions for you. Contact the real estate industry professionals at Big Life Home Group to have any questions you may want answered.


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