What Does Location, Location, Location Really Mean?
Ever wonder what “location, location, location” really means?
You may have heard this common saying among real estate agents when talking about home values and what they offer to owners/renters. The idea is that the location of a home or property (and its surrounding areas) directly influences quality of life, your home’s value, access to job opportunities, and much more.
In this article, we’ll take a look at what you need to know about location-based factors at play in where you decide to live.
Understanding Home Value and Location
To give you an idea of how much location actually plays a part in home values, a quick comparison between New York City and New Mexico will illustrate the point. As of 2020, the median list price of homes in New York City was $835K. In New Mexico? The median home cost in New Mexico was $193,200.
The difference between these home values is that they’re based not on the initial construction of the home - including materials, land value, and markup by builders - but evolve based on what surrounds the area. Unless you plan to physically transport your home to a new location (not likely unless you own a mobile home), a home’s value is based on factors around where it is built and the local jurisdictions that govern it.
New York City obviously is built in a world-class metropolis with unprecedented demand for homes. There are also tons of things to do in The Big Apple, all within a short distance. By comparison, New Mexico has less economic opportunities and high per-capita crime, making it less desirable. This, of course, is a simplification but the more in-demand an area is due to its benefits, the greater its value will be.
Home Value Fluctuations
Homes have a value that constantly fluctuates based on the location. While real estate tends to accrue value throughout the years, areas that are economically-stagnant tend to reflect this in the price. Conversely, areas experiencing a boom can have values raised in a short amount of time. And depending on the commercial or recreational activities that develop nearby, a home can raise or lower in value accordingly.
Austin and Detroit: A Location-Based Comparison
Location matters for home values, especially in response to economic booms and busts.
One of the prime examples in recent years is Austin, Texas’s mass migration from prospective homeowners around the country. What was once known primarily as a state capital and college town, Austin, Texas now enjoys a status as a tech-hub and startup hotspot, where home values have skyrocketed in recent years due to Austin’s favorable climate, local universities, and job opportunities.
The other side of the coin is that now there’s more traffic in Austin and its surrounding areas, causing longer commute times and a lower quality of life in general. Despite these trade-offs, Austin is experiencing a housing shortage and thus home values continue to rise.
Another famous example is Detroit, which has seen a massive exodus of residents for decades since the dismantling of the automotive industry in the area. What’s left behind is an area that is high in crime and poverty levels, reducing home values to astronomically-low values. While some entrepreneurs are moving to the area to scoop up deals, Detroit is a perfect illustration of the ramifications of “location, location, location”.
For these reasons, you’ll want to stay informed about any new developments in the area, as well as larger economic trends in your city and state. If you notice a large number of “For Sale” signs in your neighborhood, it may be time to move. For example, if a new correctional facility is being built in your city near to your home, you can expect crime to increase and home values to plummet.
Other Location-Based Factors for Home Value
There are plenty of other location-based factors to consider when looking at a home’s value. For example, a home with a view of a surrounding mountain range will obviously be more valuable than a cookie-cutter home without a view.
There’s also the proximity to recreational opportunities. Homes near the beach feature a great view, but are also prized for the ability to sunbathe at the beach, go fishing, hop in a boat - all at the drop of a hat. Isolated areas, such as those in the Midwest, tend to be cheaper due to the flat, unexciting landscapes that are in between long drives to parks, lakes, and other recreation.
Climate plays a part, too. Year-round climates are generally more desirable for their comfort, pushing up the demand versus places that are excessively hot or cold, or experience natural disasters on a regular basis (Florida, Louisiana, Oklahoma).
Proximity to good school districts is also highly-valued. Homes that are close to good schools typically sell at a premium versus schools far away from them. These areas also tend to be safe, so prospective homeowners with families seek these out for a good investment for the future.