A house is a huge purchase that we think will bring major value, but there are ways a house depreciates in value over time. A house should of course appreciate in value if you’re living in a country with a thriving economy. In fact, if you have done any improvements in the house, it is automatic that it shall be worth much more than when you bought it.
There are however instances in which a house depreciates in value over time that you need to know about. As an informed investor, you should be aware of the value of your property at all times. This will always give you an idea of how much you would get in case you decide to sell your house, or how much equity you can release from the house.
Of course, the more valuable your house is, the more you can release in terms of equity. In this review, however, we are focusing on situations in which your house depreciates in value. This is important for every homeowner to know, so you can always tell when you can sell, and when you shouldn’t even attempt to put your home on the market.
Let’s get started
An Increase In The Mortgage Rates
When the interest rates for mortgages are low, many buyers are able to afford to spend money on a new house. However, when the rates are high, nobody buys a new house. High-interest rates cause homes to become unaffordable to potential buyers. They cannot afford to buy the house as they shall be required to pay very high installments per month, and therefore, they would prefer to wait until the rates come down so they can invest in a new home.
Now, when people are not buying houses, then sellers are not selling as well. The value of your home shall definitely go down, because no one wants to sell, and this is done in order to influence buyers to still buy at the high-interest rates. It is sort of a discount they receive, but to you – the seller, this is a huge loss, and you would rather not sell your home. If you must sell, then you shall end up selling at a price that is way below the real value of the home, since the rates are too high.
Your House Depreciates In Value Due To Natural Disasters
We have all seen how terrible natural disasters can be. We are not talking about the occasional rainstorm or snowfall, we are talking about hurricanes, tornadoes, earthquakes, wildfires, mudslides, floods and tsunamis. If this happens in your home town, the value of houses shall definitely go down.
If you think about Hurricane Katrina that struck in 2005 and the devastation it caused, you shall understand why this is truly a natural disaster. The hurricane destroyed property worth more than $81 billion, not to mention the many people that lost their lives. The thing with natural disasters is that they strike without warning, and completely destroy an area.
The weather can also change over time, and when buying your home, you probably did not require to have flood insurance. Just one hurricane later, your home is no longer as valuable as it was, and now you have to take insurance to cover for natural disasters. Flood zones are then altered so they can require people in the town to insure their homes and this shall have a huge impact on the value of your home.
Natural disasters will damage the existing property and if you happen to already have insurance, you could get some money for the damage, but rarely is this ever enough. You shall then be forced to apply for aid from FEMA, but qualifying for this is not always guaranteed.
Your House Depreciates In Value Due To Foreclosures And Short Sales
This is yet another threat to the value of your house. If there are lots of short sales and foreclosures in your neighborhood, then this can affect property value in the whole neighborhood as a whole. This is because it skews the comparable sales with the neighboring towns.
Let’s look at an example
If for example you are living in a 3 bedroomed house, with 2 baths and it is on a 1500 square foot property, and the price of similar homes is around $350,000, then one of your neighbor’s house is foreclosed and sold at a merger $200,000 this shall significantly affect the value of homes within the neighborhood, and ultimately decrease their value.
Having short sales such as foreclosures in your street is very dangerous to your property. Even if the homes are not comparable to any other around the town, it really doesn’t matter, it shall still affect its value. Remember that banks will foreclose on a house and sell it at a very low price, just so they can recover their money.
Ways Your House Depreciates In Value Conclusion
It is important to always keep track of what can cause your property value to go down. The above 3 points are some of the most common reasons why your home would depreciate in value. As we said above, most homes actually appreciate in value so don’t be afraid to invest in the property market, just make sure you keep yourself informed.