Looking to buy a new home but not sure exactly where you want to move? As you start your search, you'll find that prices vary greatly from one place to another—and can even be drastically different just one neighborhood over.
Learn the key factors that affect real estate prices and how to find the right location for your next home.
- Home prices fluctuate based on supply and demand. Prices rise when demand is high and supply is low, and vice versa.
- Demand increases are often driven by good regional weather, attractive geographical features, well-regarded schools, and thriving cities.
- Less demand for homes is seen in rural areas without tourist attractions and in areas with less-than-ideal weather conditions.
- The right location for your next home will depend on your budget, household income, needs, and preferences.
Why Location Is Important in Real Estate
The typical price for a middle-tier home in the U.S. was $344,141 in April 2022, according to the Zillow Home Value Index. However, in some locations, you'll face much higher or much lower prices. But why?
Several factors determine the value of homes in an area, but it all comes down to supply and demand. When demand for homes is high but the supply is low, prices will climb. When demand for homes is low and supply is high, prices will drop.
Let's take a closer look at the factors that impact supply and demand in both expensive and affordable U.S. real estate locations.
Expensive Real Estate Locations
In many of the most expensive real estate locations, the demand is ever-growing, but the supply is limited by available space and/or regulations that limit residential developments. Here are some of the factors that increase demand and drive up prices.
A moderate climate is highly desirable as it provides pleasant temperatures year-round. No shoveling snow or blistering summers! However, only so many places are graced with ideal weather, which means a limited supply of space, high demand, and often-lofty expenses.
When you think of where to find ideal weather in the U.S., the south and central coasts of California top the list. Temperatures typically range from the mid-60s to the mid-80s all year. The land of sunshine is no secret, though, as the typical home value in Los Angeles is $988,288 and in San Diego it's $992,818 as of April 2022. Near-perfect weather comes with a hefty price tag.
Attractive Geographical Features
Another factor that drives up demand is attractive geographical features like popular lakes, beaches, rivers, and ski resorts.
Scenic areas typically attract buyers and also tourists, which creates more competition for real estate between owners and investors. Further, there's only so much space in close proximity to the lake, beach, or other features.
South Lake Tahoe, which sits on the state line of Nevada and California, is one market that proves this point. Nestled on the banks of picturesque Lake Tahoe, it's also a destination for golf, gambling, skiing, and restaurants. The result? A typical home price that's more than double the national average at $737,732.
As realtors and home sellers will often attest, houses in school districts that post higher test scores and enjoy good reputations for their quality of education usually command higher prices. One study by economists and analysts at the Federal Reserve Bank of St. Louis found that "the price premium parents must pay to buy a house in an area associated with a better school increases as school quality increases."
Their research found that this is true even after controlling for racial composition and other neighborhood demographic characteristics that historically have figured into U.S. house prices along with boundary fixed effects.
You'll also find people attracted to top-tier cities with good infrastructure, job opportunities, entertainment, and high safety ratings. When housing can't keep up with the demand due to space or other issues, prices will rise.
For example, Manhattan is a metropolis romanticized in movies and bustling with culture, career opportunities, and landmarks. However, space is limited, and land-use regulations have long prevented further residential development. As a result, the typical home value has steadily climbed over the years from $245,633 in 1980 to $753,782 in 2022.
Ryan Hardy, luxury real estate agent with Gold Coast Realty in Chicago, told The Balance in an email: "Homes in major cities that have little room for expansion (think New York, San Francisco, Chicago, etc.) tend to be more valuable than those in areas where there is space to build and expand the city's footprint."
Cheap Real Estate Locations
On the other hand, you have less-expensive real estate locations that fall below the national average. Here's what to look for if you want to buy on the more affordable side.
When the climate in an area is not so comfortable, it often will impact real estate prices as it makes an area less desirable for most people. Alaska, for example, gets colder than many other states and had typical home values of around $314,278 in April 2022.
You can expect to see lower prices from areas that get extremely hot or cold to those prone to natural disasters like hurricanes or tornadoes (as long as they're not tourist destinations, like Las Vegas).
No Tourist Attractions
Smaller towns without well-known tourist attractions or physical features like lakes or beaches will also have a lower demand for housing. To find cheaper prices, look for areas you like that aren't very popular yet. It could take a bit of research, as they won't be well-known or featured in popular publications.
For example, Edinburg, Texas, had a typical middle-tier home price of $181,945 in April 2022. It's a smaller town about 60 miles from the coast of the Gulf of Mexico, with more than 100,000 people. While there's nothing out of the ordinary there, it's home to many businesses, a major state university, neighborhood developments, and entertainment.
Last, the further you get from city centers, the more affordable homes typically become. Garrett Derderian, director of market intelligence at real estate company Serhant, told The Balance in an email: "Less-expensive markets are generally farther away from their nearest downtown and often have fewer options for recreation, shopping, and dining."
Many people need to be close to cities to get to school and work. However, if you don't have those requirements and can move further from town, you'll find less demand—and lower prices.
A great example of this can be seen in Idaho. In 2020, Boise's real estate market exploded, leaving it the most inflated market in the U.S. with homes selling for an average of 75% more than they're worth, according to national housing market data research by Florida Atlantic University's College of Business in March 2022. While typical home prices currently stand at about $535,281 in Boise, you'll find typical prices around $310,118 by taking a short 45-minute drive southeast to Mountain Home, Idaho.
How To Choose Where To Buy Your Home
Deciding where to buy your home will depend on many factors, including your budget, income sources, necessities, and lifestyle preferences. Here's more on what to consider during that process.
The first thing to figure out is your budget. If you're going to buy using cash, review your finances to figure out how much you want to spend. If you're going to finance the home, you can speak with a loan officer to get preapproved for a set amount based on your income, credit, and assets. With a number in mind, you can start looking at your options.
An important factor to consider is your income sources. If you don't work remotely and need to continue earning an income, you'll have to consider locations based on if you can find a job or run your own business from them. More rural settings may not provide you with the career opportunities you need to pay for your home and other expenses. Further, if you'll need to find employment, it's important to look at the cost of living and wages in the area.
It's also important to consider other necessities. If you have children, good schools may be on the "must-have" list. You also will likely need to be near a grocery store and other businesses that offer items you need for daily life, like clothing, appliances, and tools.
Additionally, safety is often a concern, so you'll want to check the crime data in potential locations. Although some major online real estate search sites, including Redfin and Realtor.com, decided in 2021 to stop posting these figures because "the long history of redlining and racist housing covenants in the United States [can lead to] too great a risk of this inaccuracy reinforcing racial bias," Redfin said.
Next, you'll want to consider your list of wants, so you should ask yourself a few questions. For example:
- How do you want to live your life and spend your time?
- Do you want to be near the water?
- Would you like to be able to do a certain sporting activity like snowboarding, surfing, biking, or kayaking?
- Do you want to live in a bustling city, or do you prefer a quieter small town?
- It may also be important that a state's political tendencies and laws align with your beliefs and lifestyle.
Write down your budget, along with a list of the needs and wants for you and anyone else moving with you. With this in hand, you can begin to search for places that meet these criteria while also satisfying as many of your wants as possible. You can share this with your real estate agent so that you're both on the same page during your house search.
Real Estate Values Fluctuate
The supply and demand of homes are always going to ebb and flow. As a result, you should expect real estate values to fluctuate continuously.
Will Rodgers, a real estate agent with Keller Williams Realty in Northern Virginia, told The Balance in an email, "Home values tend to change as an area is developed, or as the plans to develop are revealed. For example, news that a large corporation is adding a headquarters nearby would positively affect the homes in the area."
He continued, "There can also be negative effects. For example, if homes backing up to a wooded area learn the area will be developed into more homes, the existing homes would lose their view and likely take a hit to their value."
When buying, look for an area that is up-and-coming, as future growth could help boost your home's value. You don't want to buy when pricing appears to be at the top end. Also, be aware of any upcoming developments that could affect your property value.
The Bottom Line
Finding the right location for your next home is a personal decision. You'll need to consider your budget and the market conditions, along with your needs and wants. While it can be an involved process, your efforts will pay off when you find the right home, in the right place, at the right price. Working with a reputable real estate agent can help you streamline the process.
Frequently Asked Questions (FAQs)
How does someone determine the value of a specific piece of real estate?
To determine the value of a piece of real estate, you can get an appraisal from a certified or licensed appraiser who will render their opinion of the property's market value. Appraisals are made based on a variety of principles, including supply and demand, increasing and decreasing returns, anticipation, and conformity. The appraiser often will take into consideration the features of the home, its condition inside and out, current market conditions, and recent sales of comparable properties.
What is a certificate of location in real estate?
A certificate of location is a report by a land surveyor that provides all the details about a property (for example, building dimensions, land dimensions, general plan of the property, and encroachments). The surveyor will comment on the current condition of the building and land in relation to cadastre, ownership titles, and laws and regulations. In some locations, including parts of Canada, a certificate of location may be required when selling a property. These are not common in the U.S.