There are a number of things that you can do personally to increase the value of your home. Unfortunately, there are also forces beyond your control that can have the opposite effect. Even though you aren't able to control them, knowing about their possible effects on property values allows you to plan ahead if necessary.
1. Natural Disasters
Natural disasters are those weather elements that go beyond the occasional heavy rain or temporary flooding that might occur with a thunderstorm. Instead, think of a natural disaster as an event that can completely devastate an area.
In 2011, an F-5 tornado caused 158 deaths and about $2.8 billion in property damage in Joplin, Missouri. The Camp wildfire located in Butte County, California was particularly destructive burning 153,336 acres and nearly 19,000 structures in 2018.
Changing weather patterns can also have an effect on property values. A home that was not in a flood plain when you purchased it could be in the path of a powerful hurricane that causes flooding throughout the entire town.
2. Climbing Mortgage Interest Rates
Mortgage interest rates are tied closely to the amount that a buyer will pay for a home over the lifetime of the loan. Additionally, their monthly mortgage payments will also be lower.
As mortgage interest rates increase, however, a potential home buyer isn't able to afford to spend as much on a home. Not surprisingly, the effects of climbing mortgage interest rates are also felt by sellers.
In a nutshell, rising mortgage interest rates mean that potential buyers will have to pay more for it so it then becomes less valuable to them. Prior to the increase, as an example, your home might have been in the price range of 25 percent of the potential homebuyers in your area. As a result of the rise in mortgage interest rates, though, that number might have dropped so that it is now only in the price range for 15 percent of prospective buyers.
3. Foreclosures and Short Sales
Foreclosures and short sales of the homes in your neighborhood can skew its comparable sales and reduce property values. If two homes in your neighborhood sold for around $250,000 but a third was foreclosed on and sold for just $100,000, the comparable prices of the entire neighborhood -- including your own home -- could suffer.
Even if a home that is not directly comparable in that it has the same number of bedrooms, baths and square footage if it is in your immediate neighborhood and is foreclosed on or the subject of a short sale, the area could suffer from depreciation. Prospective buyers could be hesitant to purchase a home in a neighborhood that has a lot of foreclosures. They might worry about the stability of the entire neighborhood and the future value of their home if they purchased one in the area.
Being aware of the things that are out of your control and that could still affect the value of your property helps you plan your strategy should you decide to sell. If you are in the market for a home, on the other hand, a home that is in an area that has experienced any of the above situations could provide you with more leverage to bargain with.
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