Home Appreciation: What Is It And How Is It Calculated?
Everyone wants to believe their home’s value is on the rise, but the truth is, homes that have received little to no upgrades over time are typically in a constant state of depreciation. This isn’t the type of news you want to hear when it comes time to sell the property, so it’s important to be proactive in understanding your home’s value and the factors that impact it.
But what exactly is home appreciation and how does it work? In this article, we’ll cover what appreciation means, how it’s calculated, and what you can do to encourage it in your home.
What Does Home Appreciation Mean In Real Estate?
Home appreciation in real estate is the increase of a home's value over time due to factors such as renovations, neighborhood improvements or market forces. Appreciation can be calculated by taking the difference between the current estimated value of a home and its original purchase price. Home appreciation is not guaranteed and can vary depending on location and other external factors.
Home Appreciation Vs. Depreciation
Home appreciation and depreciation are two terms that are used often in the real estate industry, and as a homeowner, it is important to understand the differences. Home appreciation refers to an increase in value of a home due to factors such as renovations, neighborhood improvements or market forces. Depreciation, on the other hand, is the decrease in a home’s value due to age or wear and tear.
What Is The Average Home Appreciation Rate?
The average home appreciation rate is a measure of how much a home's value increases over time. This rate takes into account factors such as renovations, neighborhood improvements or market forces. According to the National Association of Realtors, the national median home price appreciated 6.7% in the first quarter of 2021 compared to the same period in 2020.
But it’s important to note that this appreciation doesn’t happen on its own. In fact, homes are in constant states of depreciation unless they are regularly maintained or undergoing renovations to increase the home’s value. Appreciation rates can also fluctuate significantly due to changes in the housing market, so the current rate of appreciation isn’t always a reflection of future value.
What Factors Affect Home Appreciation?
As we’ve discussed, there are several factors that may affect home appreciation. While some of these factors are within a homeowner’s control, others can be harder to predict. The most common factors that impact a home’s value include:
The housing market: The conditions of the housing market can affect a home’s appreciation. Supply and demand play a key role in appreciation trends – so in a seller’s market, home appreciation will increase, while a buyer’s market may lead to home values staying the same or decreasing over time.
Location: The area your home is in will also impact its appreciation. While the national average can be a good indicator of trends at a high level, localized data indicates how real estate appreciation can vary between cities, neighborhoods and even property type.
Interest rates: Interest rate trends affect appreciation due to their impact on prospective home buyers. Low interest rates motivate these individuals to buy now, therefore driving demand.
Home improvements: Home improvements and renovations have the potential to increase your home value the most over time.
How Is Home Appreciation Calculated?
Home appreciation is usually calculated by comparing the original purchase price to the current estimated value of a home. The difference between these two figures will give you an approximate amount of appreciation your home has received over time. It’s important to note that this figure may not be exact, since market values of homes can fluctuate due to changes in the economic climate or other external forces.
How Can You Add Value To A Home?
Although appreciation cannot be guaranteed, there are certain steps you can take to help increase your home’s value over time. Making upgrades like remodeling a kitchen or bathroom, adding square footage, or addressing any structural issues can help increase the value of your home. Additionally, staying on top of maintenance and repairs will ensure that your home is always in good condition and ready to sell when the time comes.
How Much Does A House Appreciate Per Year?
As explained earlier in the article, a home’s annual appreciation depends on the national appreciation rate at the time, which is heavily impacted by fluctuations in the housing market. To get the most accurate information, we recommend researching appreciation rates in your specific location, as these rates may differ drastically between cities.
Do Manufactured Homes Appreciate?
Manufactured homes are increasingly popular due to their overall affordability and growing commitment to provide the same amenities as traditional forms of housing. The good news is manufactured homes are found to appreciate at the same market rate as traditional homes, so you don’t have to worry about sacrificing future value if you choose this form of affordable living.
Conclusion
Home appreciation is an important factor to consider when it comes to buying and selling a property. Understanding how it works and what you can do to encourage it will help ensure that your home is worth more in the future than it is today. With a bit of effort on your part, you’ll be able to reap the rewards of a well-maintained and appreciated property.
If you have any questions about calculating or encouraging home appreciation, talk to your real estate agent for more information. Your agent will be able to provide you with tailored advice that can help you make informed decisions about the future of your home. With their help, you’ll be able to maximize the return on your investment and ensure a profitable sale in the future.
