As the real estate market braces for 2024, homeowners, investors, and potential buyers are being cautioned about several types of properties that are projected to diminish in market value.

Current economic uncertainties, shifting buyer preferences, and environmental concerns are major forces reshaping the housing landscape.

In climate-vulnerable areas, homes are increasingly losing their allure as the risk of climate-related disasters grows. With insurance costs soaring, and some insurers exiting markets altogether, buyers are hesitant to invest in these locations. The economic impact is a tangible decrease in property values for regions susceptible to environmental calamities.

Outdated single-family homes without modern renovations are becoming a tougher sell. Buyers now seek energy-efficient, technologically integrated homes that require minimal updates. As preferences shift toward sustainable living, outdated properties are expected to encounter a widening valuation gap.

Urban luxury condos are also poised for a valuation decline.

The pandemic spurred a trend away from dense metropolitan living to more spacious suburban or rural residences. Coupled with the normalization of remote work and high maintenance fees, these high-end city dwellings are attracting less interest, pressuring their prices downward.

Properties in proximity to polluting industries are anticipated to depreciate due to growing concerns over environmental health.

The demand for healthier living spaces is causing homes near factories, refineries, or traffic-congested highways to decrease in desirability and, consequently, value.

Large homes in declining neighborhoods are another category facing potential value decreases. As economic activity wanes and local amenities fade, these oversized properties may no longer justify their high maintenance costs and property taxes, leading to valuation drops.

The evolving real estate market is highly sensitive to buyer trends and environmental risks. Homes that fall out of favor with emerging preferences or are situated in areas with increasing hazards are likely to experience a decline in value.

Supporting this perspective, a 2015 study by the MIT Center for Real Estate reported that real property, excluding land, depreciates at approximately 7 percent annually on average, indicating a faster pace than previously estimated.

PricewaterhouseCoopers’ analysis of the study suggested that the annual depreciable life of nonresidential and residential properties would be closer to 20 years for nonresidential and 19 years for residential.

Meanwhile, the National Association of REALTORS® advocates for a depreciation life for real estate that truly reflects its economic life.

However, despite the early discussions on shortening the depreciation periods, the Tax Cuts and Jobs Act of 2017 did not include changes to these rules, leaving the depreciation standards for real estate largely unchanged since 1987.