If you’re wondering why California home prices fluctuate, there are a number of factors to consider. You may hear that there is a buyer’s market and a seller’s market. When home prices are lower, it is a buyers market; when they are higher, it is a seller’s market. Things like lower interest rates for mortgages can affect the price of homes, while the scarcity of the resources (e.g., the number of homes on the market ) can also affect prices in a given area.

When trying to predict the fluctuations of the housing market, there are complicated forecasting tools that can be utilized. These tools use a wide range of variables, as there are several indicators that can be used to estimate changes in the market. Let’s discuss some of the factors that cause housing market fluctuations in California.

Supply and Demand

One of the biggest reasons house prices fluctuate in California and in other parts of the country is simple supply and demand. If there is plenty of competition (a lot of houses being sold at once) and little demand for houses in that specific area, then the cost of housing will go down. In the opposite end of the spectrum, if there are few houses being sold and the demand is high for that area, then the price of the housing will go up. The market fluctuates with demand. Sellers can’t necessarily control these variables, but they can list at a time when demand is higher. Conversely, a buyer may be smart to purchase a property when demand is lower overall.

Economic Conditions

When the economy is on the downturn, the housing market also drops. When it is hard to secure a mortgage loan because banks are being cautious, housing becomes less expensive. If the majority of people are struggling to secure a mortgage loan, even with lower interest rates, it leaves fewer people able to buy homes.

Desirable Areas

Something called “perceived scarce resources” often affects the pricing of property in California. For example, certain sections of the state are considered highly desirable places to live, like Silicon Valley. If you work for a tech company, for example, you’ll want to live close to your job — but so do thousands of other people who are employed by these companies and work in these areas. That means the immediate surrounding area is considered “prime location” for people who work in your organization. The further out you move from that “prime area,” the less expensive the housing will be. Even if the commute isn’t terrible for those living outside that exact location, the idea of living as close as possible has buyers convinced that housing in that closest range is a scarce resource– and buyers will pay more to live there.

Of course, if you do pay more to live in a prime area, you may not always be able to afford your choice. Roughly 63% of homeowners are behind on their payments. They are not aware of programs that can help, and sadly, many of them lose their homes as a result. This scenario can be avoided, however, by being smart about the home you buy and the resources available to you. In many cases, the perception of the resources being scarce is not realistic. You could save thousands of dollars by buying in an area just outside the prime real estate area.

The Biggest Driving Factor

Ultimately, the biggest driving factor of real estate price fluctuations is the consumer. Trends in consumer buying, interest rates, desirable areas, conveniences, and other consumer-based factors really control real estate prices. Currently, we’re experiencing a buyer’s market because of the lower interest rates and how they make mortgages more affordable.