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What Causes Home Prices to Fluctuate?

By Mike in Miscellaneous with 0 Comments

There are many factors that affect the prices of real estate in downtown San Diego, ranging from property location to interest rates. If you’re interested in purchasing a condo or loft, these interconnected factors can become even more complex. Here are some of the main reasons home prices rise and fall.

Inflation Cycles

Over a set period, real estate prices tend to increase. This gradual rise in prices is known as inflation, and it’s a key factor driving the real estate market. When inflation growth reaches a tipping point, the market is due for a downturn, and house prices temporarily deflate. Housing prices, including the prices of condos for sale in Little Italy San Diego and other downtown districts, are buoyed and sunk in accordance with this cycle. When purchasing a condo, you should be cognizant of current inflation trends and aware your home may temporarily depreciate during a downturn.

Local Demand

While inflation trends affect homebuyers across the country, you could also face factors specific to your chosen location. Some towns have a limited supply of condos, and the prime options are in high demand. Others areas have more condos than buyers, and the low demand depresses home prices. While it may at first seem beneficial to live in a low-demand area, it could come back to haunt you when you try to sell your house in the future. If demand doesn’t increase, you may end up dropping your asking price to sell your home, especially if comparable local properties, often called “comps,” are sold at a lower-than-expected value. Comps are an important factor in the appraisal process, and they can affect the value of similarly sized homes throughout the area.

Financing Options

Most people use government-sponsored financing to purchase homes. These institutions often have stricter financing policies for condo loans than single-family house loans. The US government’s primary lending entities, Fannie Mae and Freddie Mac, require 5 percent down payments on single-family homes. For condos, homebuyers have to make a down payment of 10 to 20 percent. These guidelines often relax during times of economic expansion and tighten during time of economic recession. When you seek financing for your new condo, be prepared to make a comparatively high down payment.


Location is a key motivating factor for homebuyers, and it’s a major component of “hedonic pricing,” an economic term for when price is determined by the intrinsic and extrinsic value of the product in question. Location is an external factor that has a major impact on lifestyle, ranging from the quality of the public schools to the proximity to the buyer’s workplace, and it also encompasses a property’s proximity to shopping districts and entertainment facilities. If a condo is close to good schools, business districts, and recreational centers, these extrinsic factors will have an impact on its price tag.

Condos aren’t the only types of properties affected by the above factors. Downtown San Diego penthouses for sale are as well. If you’re interested in learning more about the local real estate market so you can purchase a home in downtown San Diego, contact Urban Living today at 619-649-0368.