How do houses go up in value?

Ever wonder HOW prices rise for houses?

Before I got into real estate, I didn’t really think about it. You’d read stuff like the average price went up something like 4.6% last year…I assumed it was like a rising tide and affected every house the same way at the same time.

But it doesn’t work like that. It works more like traffic taking off after a stop light. The first car goes, then the second car see the first car moving and goes, then the third car sees the second car moving and goes, and so on. As much as I wished they would all move at the exact same time, they don’t. And that is exactly how prices go up in real estate.

There are lots of factors impacting value: Supply/demand, location, price range, condition, etc. No surprise here, but when prices are going up, the neighborhoods that are the most desirable and have the least supply go up first. Once there is enough of a price gap between those neighborhoods and the next best neighborhood, the prices of the second best neighborhood start to rise as buyers see a bargain and move in that direction. Then when the prices are up on the second best neighborhood, that does two things: It makes the prices go up on the first choice neighborhood since it is better, and it also drives bargain shoppers to the third best neighborhood. This process ends up going through ALL the neighborhoods in town as long as the market remains hot.

I sold two houses in one particular neighborhood several years ago to some friends wanting to rent them out. I was telling my friends that I thought the prices in the neighborhood were about to go up since there was a big gap between what an identical house was selling for in other neighborhoods. Since I tend to Geek out on this type of stuff, I don’t think they were as into it as I was…..but now their houses are each worth $35-45k more in just a few short years.

So, next time you are stuck in traffic, forgive me if it makes you think of real estate.

LEXpert Perspective: Today’s Market

It’s been an interesting spring market. I won’t get into why it has since the reason is all over the news and on all of our minds.

The market goes on though.

Both buyer and seller activity has greatly decreased. However, there are still more buyers than sellers so the supply-demand thing means any decent house that is priced in the realm of reality is going to sell very quickly. There has been some speculation that there will be more listings on later this year as sellers put their houses on the market after waiting this out. Yes, that will happen, but there will be just as many buyers out too so it won’t get any easier to get a house. Bottom line is if you are ready to sell, then do it. If you are ready to buy, get out there. Waiting is not going to change much.

One good thing I am seeing lately is more and more houses under $200k. Last year there just weren’t too many houses hitting the market under that price. I scroll through the new listings every morning. They are sorted from lowest price to highest price. Seemed like last year after the first few houses it quickly got over $200k. This year it seems I am seeing many more under that affordable threshold. I think this probably has to do with the low interest rates. A lot of those buyers with $150-200k houses are stepping up to the $250-350k range. If you’ve been reading my blog for long, you have heard me say that first time buyers are what greases the gears on the real estate market. They are usually the only people who don’t need to sell a house before buying one. There have been plenty of them out there the past couple of years, but there haven’t been enough houses for them. That is why a house that was $140k a few years back is now a $180k house. If you are going to be looking in the sub $200k range, NOW is the time to get out there. Don’t worry about the sky falling. Just do it. I’ve had several people who were always worried about buying at what is perceived as the top of the market. All of the houses they thought were too much back then are all worth much more now.