Demand Drives Home Values

Dated: 04/05/2017

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Demand, rates drive home values


The home's quick appreciation is due to the current real estate market and the substantial work they put into the three-bedroom, two-bathroom home - the Chaneys installed a new heating and air system and modern lighting and finished a game room.

"We tried to update it a little," said Hilary Chaney, adding that the home, built in 1962, had the original wallpaper, carpeting and other adornments when they moved in.

Remodeling a home is often a quick way to increase its value.

James Gallagher / Staff

Justin and Hilary Chaney are selling their three-bedroom, two-bathroom central Lubbock home for $119,900. The couple made substantial upgrades in the five years they owned the home, significantly increasing its value from the $80,000 they paid for it.

But more often, home prices are driven by interest rates, housing demand, new construction and a desire by sellers to get more money for their home.

All of which keep the Lubbock Central Appraisal District busy. State law requires the appraisal district keep home values in line with market prices when assessing property taxes. As the market pushes prices up, the appraisal district raises its assessed values.

From 2000 to 2004, the average sales price for homes in Lubbock increased from about $99,900 to about $114,400, the Lubbock Association of Realtors reports.

"(Home prices) keep going up because we are pushing the upper limits," said Emily McKelvian, a real estate agent with Advantage Realty, the company listing the Chaney's home. "Sellers want to get the most that they can for their house."

Many real estate agents determine a home's sales price by looking at nearby homes of equitable size, age and condition that are currently on the market or that have sold within the past six months. Realtors use that information to generate a price range in which to value a home.

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"Right now, they are all pushing the upper end of that range because we have more buyers than sellers," said independent property appraiser Marianne Overton.

While realtor association statistics through 2004 show homes are being put on the market at a faster pace than homes being sold, demand in Lubbock has held strong enough to support new construction and push prices up.

Paul Goebel, a professor of finance at Texas Tech, said much of the recent housing demand is the result of lower interest rates.

"We had very low interest rates over the past five years and they're still very low, historically speaking," said Goebel, adding that in 1980, his mortgage rate was 12 percent.

The rate on a 30-year mortgage was running about 5.2 percent Friday, according to, a leading banking and investment Web site.

Low interest rates reduce monthly mortgage payments.

"Right now, a first-time home buyer can buy a home for about what they are paying for rent," said Linda Gaither, president of the Lubbock Association of Realtors

Renters can now afford to buy, and many current homeowners can upgrade without increasing their monthly payments.

For example, given an 8-percent, 30-year mortgage, a $100,000 home would cost about $734 a month.

Lower the interest rate to 5.2 percent, and for $734 a month, a home buyer could afford a $133,000 home.

The lower interest rates effectively increase a prospective owner's buying power.

"Due to low rates the last few years, people are getting more house for their money," said Brandon Peters, a real estate agent with RE/MAX. "People who were buying $100,000 homes are now paying $120,000 or $130,000."

The greater demand for slightly more expensive homes helps spur price inflation. Prices move up because buyers can afford it.

Also causing home prices to grow is the cost of new construction. Rising oil prices have made producing and transporting building materials more expensive.

When new construction prices go up, older homes follow - new construction reflects the replacement cost of an older home.

Unless the population of Lubbock stops growing, and houses stop selling, home prices are likely to continue to increase. And even if those things do happen, prices may still rise.

"All things being equal, our property values are going to continue to increase," Gaither said.

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