Your home’s value matters — it determines what profit you’ll see when you sell and is a major factor in determining your overall wealth. In the last few years, home values have soared, giving homeowners a big boost to their underlying equity.
While values are still rising in most housing markets, some are rebalancing after unprecedented home price growth and buyer demand over the past few years.
According to data company ATTOM, the portion of equity-rich homeowners, those with a total loan balance of no more than half of the home’s market value, is down. In the first quarter of 2024, roughly 45.8% of homeowners were considered rich in equity, marking the third straight quarterly decline.
The idea that your home could be losing value is scary, but the ebbs and flows of the market mean it could be a reality you’ll face at some point in your homeownership journey. Here’s what you need to know about why your home could be losing value, how current market conditions may play a role and what to do if the value is falling.
— Factors contributing to your home’s value
— Should I worry about my home losing value now?
— What you can do to improve your home’s value
— Talking to your real estate agent about home value
Factors Contributing to Your Home’s Value
The market value of a home is the price a buyer would be willing to pay at that moment in time. An appraised valuation is considered a snapshot of a home’s value at a specific moment in time.
Just about every detail in and around your home contributes to its overall value, combined with plenty of outside factors. Things like the building materials, the quality of the finishes like cabinetry, flooring material and countertops, and exterior ornamentation or shutters all contribute to your appraised value. For more information, check out the Guide to Understanding Home Value.
Neighborhood amenities are also a driving factor in value. In New York City, for example, “how convenient the neighborhood is to public transportation or attractions matters more than how pretty the neighborhood is,” says Billy Apter, a real estate agent with Re/Max in the Brooklyn area.
If you’re worried your home is losing value, think about these contributing factors first:
— Condition of the home, inside and out
— How the size and condition of the home compares to others nearby
— Design features that make your home unique, for better or worse
— Location of the home
There are external factors most homeowners cannot control, like current housing market conditions, mortgage interest rates and other economic factors that impact supply and demand for housing. When it comes time to sell your property or otherwise get a valuation, however, homeowners should worry most about how the above factors fit into the context of the uncontrollable factors in the market.
“Market trends and seasonal ebb and flows of inventory are a big factor in the rise or fall of home value,” says Delaine Peden, a real estate agent and certified residential appraiser with DK Home Appraisals and Sales in Dallas. “But another important factor for an appraisal valuation is location.”
[What Is a Home Appraisal and Who Pays for It?]
Should I Worry About My Home Losing Value Now?
No matter what, homeowners are likely to fret over the larger housing market and home prices, and whether they will impact the value of their own home.
According to the Case-Shiller U.S. National Home Price Index, the median national home price increased an average of 11.5% annually from January 2020 to January 2024, an unprecedented level of growth.
Now, high interest rates and high prices have crushed buyer affordability. Many would-be buyers have opted not to purchase right now, slowing demand until affordability is more in reach.
“High mortgage rates and affordability is probably the No. 1 issue we’re having right now for lower demand,” Peden says. “People are having to stay put where they are or rent rather than upgrade to a home they think is nicer.”
She has noticed certain neighborhoods in the Dallas-Forth Worth area are seeing gradual decreases in value, while others are still rising. “A lot of the high-demand neighborhoods have cash buyers. They don’t have to worry about interest rates impacting affordability,” she says.
According to the National Association of Realtors (NAR), existing home sales in May fell 2.8% from May 2023 as the median existing home sales price rose 5.8% year over year to the highest price ever recorded and the 11th consecutive month of year-over-year price gains. All four U.S. regions registered price gains.
The most dramatic change in housing market data has been the increase in supply. NAR’s latest report shows inventory has risen 18.5% since May 2023.
Some areas, particularly in Texas and Florida, are seeing a huge increase in housing supply. Cities like Cape Coral, Tampa and Dallas have seen 20% to 50% year-over-year increases in new listings, flooding the market with more homes than demand requires. In turn, home values and sales prices have dropped some.
On a national level, the market is still in a housing deficit with around 2.3 months of supply. A balanced market is generally considered six months of supply. But homeowners should remember that location is everything in real estate, and no two markets or neighborhoods are impacted by market conditions in quite the same way.
Rising prices is not the typical outcome when there is more inventory and less demand. It’s unclear if prices will drop as a market correction to more accurately reflect true home values, if prices will plateau for a while or if prices — and thus, values — will continue to climb, though perhaps at a slowed pace.
Separate from the current state of interest rates, it’s likely some parts of the U.S. will experience a greater decline in home prices than others in the coming months or years. The places most likely to see a continuous decline in home values are pockets where inventory has exceeded demand or major employers have closed or relocated, forcing residents to subsequently move elsewhere for employment.
What You Can Do to Improve Your Home’s Value
There’s not much you can do about decreasing home values due to macroeconomic factors like increased supply, lower demand and high interest rates.
However, there are plenty of things homeowners can do to ensure their home’s value remains on par with similar properties nearby and thus valued at top dollar for the respective market. Here are a few tips from experts:
— Aim to be turnkey. Some people like buying a fixer-upper because they can add their personal touches to the home. But with affordability at the forefront of buyer’s minds, having a turnkey home is becoming more appealing. “The cost to improve homes increased dramatically in the last two years, and buyers are keeping that in mind,” says Apter.
— Focus on cosmetic touch-ups. While the goal is to keep your home up to date, you shouldn’t renovate it entirely if it isn’t. Decluttering and staging can go a long way. “Painting always helps. Eliminating small eyesores, like stains on the ceiling, can stop buyers from thinking there are bigger issues with the home when there aren’t,” Apter says.
— Check your house’s major systems. Your home’s heating and cooling, roof, plumbing, windows, foundation and electrical system are imperative to making your home run well. These major systems aren’t as flashy as a new kitchen countertop, but they are a dealbreaker for many homebuyers.
— Care about curb appeal. Anyone trying to sell their home or have it newly appraised for any reason should take stock of the outside of the house. Fix any peeling or cracked paint, rake leaves and mow the lawn, consider planting flowers and maybe even give the house a fresh coat of paint. With curb appeal, what’s most important is how your house compares with the rest of the block.
— Acknowledge design flaws. Some features make a house stand out to buyers, and not in a good way. Unfortunately, they’re not always easy to fix. A third bedroom could be too small, or the kitchen could be on the second floor. You should accept that the home’s design might mean it’s worth a little less. “It’s delicate sometimes to have to explain this to a seller,” Apter says. “But I tell my sellers to put their buyer’s cap on. If anything raises a red flag to them, they should try to address that in their house, too.”
[Read: 12 Home Improvements That Don’t Add Value]
Talking to Your Real Estate Agent About Home Value
If you’re considering selling your home, you want to have an honest conversation with your real estate agent about the realistic value of your home. That value will help you determine your asking price.
In today’s shifting market, it’s important to pay close attention to only the most recent deals.
If there are issues in your home that could impact your home’s value and what a buyer is willing to offer, your real estate agent will make suggestions. Often there are simple cosmetic updates to make, like a fresh coat of paint throughout the house or professional staging.
Sometimes there are bigger changes, like new landscaping, new roof or new HVAC. The changes you make ahead of a sale shouldn’t completely transform the house, though.
“I never advise a seller to completely renovate their home with big items like a new kitchen or bathroom because you’re never guaranteed to get all the money out that you put into it,” Apter says. If that’s the case, you’d be better off living in the house and enjoying the renovation for a few years. Plus, you never know if your renovation design will appeal to today’s buyers.
More from U.S. News
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What to Do if Your Home Is Losing Value originally appeared on usnews.com
Update 07/23/24: This story was published at an earlier date and has been updated with new information.
