What Determines House Prices?

There are a number of factors which determine house prices, some are logical, based on economic theories and population density and some are based on more intangible factors, like the feel of a neighbourhood and expectations for future growth.

We have outlined some of the key factors which effect property prices and how they are determined.

1. Supply and demand

Put simply if demand for houses increases faster than supply, then house prices go up. For house prices to fall the demand needs to fall.

2. Interest rates

When interest rates rise, mortgage lenders generally increase the cost of variable mortgage payments. These higher interest rates in turn make home buying less attractive. Since the majority of Australian homeowners have variable mortgages, even a small change in interest rates can have a big impact on the affordability of buying a house.

3. Economic growth

As the economy grows and wages increase more people can afford buy a house, this inturn increases overall demand, which increases prices. See number 1.

4. Demographics

As levels of migration increase so does the population and more people means more demand for homes. Another factor is changes in demographics; for example rising divorce rates have increased the number of single people living alone and our old friend demand is an issue again.

5. Location, location, location

This is an obvious one. Homes that are closer to the beach, closer to the CBD or closer to transport tend to sell at a higher price.

Australia is a vast and varied country but if you look at any map you’ll see a high concentration of housing around the city centres .The majority of people want to live close to where they work, shop and go out to enjoy themselves and this naturally causes higher demand for property prices in these areas.

6. Room to move

The potential for growth is a key issue in determining the value of a property. This relates to the potential to add on a second storey, increase the number of bedrooms or add a room above a garage or in the garden. Increasing the floor area, will increase the value. This relates back to the value of Location and land size in determining house prices.

7. A second bathroom

If two identical properties were for sale in the same street, the one with the extra bathroom would sell for more. Simple. However, the value of the bathrooms relates directly to the number of rooms in the property. For example a second bathroom in a two-bedroom house would be less desirable than in a five-bedroom house.

8. Parking

We all know that parking is at a premium in our big cities so if a home has parking or even a garage this can significantly increase the value of a home.

9. Home improvements

Updating kitchens, replacing flooring, repainting walls and adding landscaping can add to the value of a home. However often homeowners spend too much and don’t get the return on investment when they sell the house. Before making drastic improvements to your house, be sure to talk with your real estate agent so that you use your money wisely on your investment.