Why Do Property Values Fall?
All property owners think of their home and land as an investment, something that only goes up in value. But history has shown that property does go down in value from time to time. A smart property owner plans for such issues to protect their investments.
What Determines Property Values?
Like any other commodity, property values come from the relationship between supply and demand. If the demand is greater than the supply, then the supply is worth much more. Conversely, if supply is greater than the demand – if not enough people want what you have – then the supply will be worth less.
In Australia, property values tend to drop when the economy weakens. When fewer people can afford to buy property, then the demand goes down. If contractors build houses before they’ve been sold, then the supply increases even more, further lowering property values.
What Can I Do About Lowering Property Values?
Not many people can control property values by themselves. Sure, you could buy up a great deal of property to limit the supply, but that’s a costly risk. Instead, it would be wiser to prepare yourself to weather value dips.
Here are a few basic steps you can take in light of dropping property values:
- Be Patient – The more sensationalist that a news report is, the more attention it will get. For that reason, the news can sometimes overstate economic concerns, making the situation look worse than it actually is. When you see signs that the economy is sagging and property values dropping, don’t panic. Instead, recognise that such fluctuations happen, and values will likely not drop much and will go back up again.
- Know Your Property’s Value – Because prices can rise and fall, sometimes a property may be artificially over- or under-valued. Look at the historical value of your property to get a good sense of its actual worth, and act according to that number.
- Purchase Valuable Property – Anyone who’s driven around an area knows that some property is more desirable than others. To protect your investment, purchase property in areas that are in demand.
At Mortgage House, we know that these fluctuations can be scary. That’s why we’re here to help. Contact us today with any of your property value questions.