What factors impact property value and house prices?

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on April 11, 2022 Fact Checked
What factors impact property value and house prices?

No one factor is the sole influence behind a property’s value, rather it is the combination of many that influence the final price - but what are they?

Behind the great Australian dream of owning a property comes a price tag. Australians are diving deep into their pockets to fork out record amounts to grab a slice of the property market. Property prices across capital cities rose 23.7% in 2021, with the total value of Australia’s 10.8 million residential dwellings sitting pretty at just under $10 trillion.


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Lender

Variable
More details
UNLIMITED REDRAWSSPECIAL OFFER
  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
UNLIMITED REDRAWSSPECIAL OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
Variable
More details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
Variable
More details
NSW/VIC/SA METRO & INNER REGIONAL AREAS
NSW/VIC/SA METRO & INNER REGIONAL AREAS

Variable Home Loan (Principal and Interest)

  • $5000 Cashback. T&Cs Apply.
Variable
More details
REFINANCE ONLY
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
REFINANCE ONLY

Variable Rate Home Loan – Refinance Only

  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Variable
More details
NO ONGOING FEESFREE REDRAW FACILITY
  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.
NO ONGOING FEESFREE REDRAW FACILITY

Live-in Variable Loan (Principal and Interest) (LVR < 90%)

  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of June 29, 2022. View disclaimer.


Factors influencing property values

As house prices continue to climb north, there are a number of factors that influence a property’s value and the price received come sale time. To generate a true understanding of property value, basic valuations using local sales and market reports to more in-depth valuations by agent appraisals and bank valuations offer insights into the factors that impact the value of your property.

Previously we’ve covered a range of property market factors that impact how much your home may be worth. Below you’ll find a number of broader economic factors that impact property value and overall price.

Read more: How much is my house worth?

Location

One of the driving forces in influencing property value is the desirability of location. If your home is by the water in a popular coastal area, close to amenities and with ease of access to public transport, generally it could be valued higher than a home on the outskirts of town with access to only a small number of resources.

There’s also the fact that some suburbs simply have a better reputation than others due to factors such as unemployment or crime rates. Two homes just streets apart can differ substantially in value if they’re simply located in different postcodes.

It’s important to note that the desirability of certain areas can come in and out of fashion, much like the growth in regional areas over the past two years with flexible working arrangements altering work-life balances, so your house could potentially be worth more now than it did when you first purchased it.

Supply and demand

In any market, supply and demand drives price expectations for goods and services. When it comes to property value, if demand exceeds supply property prices will increase. This occurs when there are more people in the market for a smaller number of properties and the competition to secure a home drives prices up. On the other hand, an oversupply of properties within an area with little appetite for demand, can be detrimental to property value.

Things to look for when researching properties include time on market, vacancy rates, and the number of listings in any given postcode, and if those numbers have changed recently.

Interest rates

When the Reserve Bank of Australia (RBA) alters monetary policy, this can influence the value of property. Low interest rates result in money being cheaper to borrow. This tends to drive up house prices because people can stretch budgets further by borrowing more money.

However, when interest rates rise lenders generally increase mortgage rates. These higher interest rates in turn make home buying less attractive as it becomes more expensive to have a mortgage due to greater repayment amounts. This can affect borrowing power, and over time this can trickle through to property prices.

Demographics

As levels of migration increase in a post-COVID world, so does the population and more people means more demand for homes. More demand as noted earlier generally means higher prices.

At the same time, the type of people living in a specific suburb or region will influence property values. For example, if young families are the dominant demographic in the area, multi-bedroom houses will be more sought-after than small apartments.

Economic outlook

As the economy grows and wages increase more people can afford buy a house. This increases demand for property overall, which increases prices.

In recent times, wage growth has been relatively subdued, outpaced by inflation and soaring house prices, yet the average Australian remains four years ahead on their home loan. Property prices recorded the strongest annual growth on record in 2021, while factors including high savings buffers, large offset account balances, the economy nearing full employment, and low housing supply all point towards positive economic outlook. 


Image by Pixabay via Pexels

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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Jacob Cocciolone joined the Savings team in 2021 as a Finance Journalist. Driven by a passion for keeping Australians up to date with the latest financial news and trends, his areas of interest include financial technology, investing, property and motoring.

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