What Does Home Appreciation Mean?

Home appreciation refers to the increase in the value of a home over time. It is one of the primary ways for homeowners to build wealth and establish financial security. Understanding what a home is worth now—and predicting what it could be worth later—is essential. Read on to discover how home appreciation works, what drives it up (or down), and how to make it work for you.

What Is the Average Home Appreciation Rate?

Nationally, the average selling price for homes has risen 80% over the past 10 years, according to the Federal Reserve Bank of St. Louis. However, there isn’t a “normal” rate for home value appreciation. The rate at which your home’s value rises depends on many factors, such as your location, the local and national housing markets, and even the renovations you’ve made to the house.

In 2022, the median sales prices of existing single-family homes in the United States were some of the highest on record. However, how much a home’s value increased varied depending on location. For example, homes in the South saw an average price appreciation of 4.9% from the fourth quarter (Q4) of 2021 to Q4 2022. In the Northeast, prices grew 5.3%; in the Midwest, price appreciation was 4%; and in the West, prices grew 2.6% year over year.

How to Calculate Home Appreciation

Calculating home appreciation is straightforward as long as you have a couple of pieces of information: the original purchase price of the house and its current market value.

To calculate your home’s appreciation, subtract the original purchase price from its current market value. The difference between these two values is the amount of appreciation over time. For example, if you purchased your home for $400,000 and it is now worth $500,000, the appreciation would be $100,000, or 25%.

Understanding the value of your home’s appreciated worth can be helpful for a few reasons:

• It helps you monitor your return on investment.
• You can better evaluate selling prospects if you want to sell your home.
• You can leverage the equity in the home to take out a loan.

What Factors Affect Home Appreciation?

Several factors can impact a home’s value, including:

• Location: A property’s location is one of the most critical factors that affect home appreciation. Homes in areas with highly rated school districts, low crime rates, and ample shopping and entertainment options tend to appreciate more quickly.
• Housing Market Trends: In a strong market with high demand for homes but low supply, prices usually rise faster. Conversely, in a weak market with lower demand but a higher supply of homes, appreciation tends to be stagnant or decline.
• Economic Conditions: Economic factors like interest rates, inflation, and job growth can also impact home values. When the economy is strong, home values might increase.
• Home Improvements: Making upgrades or improvements to your home could increase its value and lead to greater appreciation over time.
• Neighborhood Development: Improvements or new developments in an area can also impact home values positively or negatively.
• Age of Property: Sometimes older homes may not appreciate as quickly as newer ones due to their age and potential maintenance needs.

How to Add Value to Your Home

While you can’t change national economic trends, there are things you can do to improve the likelihood that your home will grow in value:

• Get Strategic: Updating the kitchen and remodeling (or adding) a bathroom often yield significant returns on investment. Small updates like refreshing the paint, countertops, fixtures, and flooring can also make a big impact.
• Tackle Big-Ticket Items: Replacing things like a roof or siding are bigger projects, but they tend to pay off in the end.
• Expand Your Living Space: Adding square footage to your home by finishing an attic or basement or building an addition is a solid way to increase its value.
• Get Modern: Making energy-efficient upgrades like installing new windows, upgrading insulation, or adding solar panels can save you money on utility bills while increasing your home’s value.
• Improve Curb Appeal: First impressions matter, so improving the exterior of your home can add significant value. This could include landscaping, painting trim, adding outdoor lighting, or updating your front door.

The Bottom Line

Buying a home continues to be one of the most solid investments a person can make precisely because of its potential for value appreciation and the ability to leverage it to make other money moves. If you’re exploring the idea of buying a home for the first time or in the process of selling and buying a new one, make sure to stay on top of your credit to give yourself the best chance at getting what you need and want.

Home appreciation is a powerful tool for building your nest egg for the future. Knowing how to calculate it and what factors affect it is essential for making sound decisions about buying, selling, or simply owning a home. With a little strategy, you can maximize your home’s value and enjoy the returns for years.

For expert mortgage services and advice, contact O1ne Mortgage at 213-732-3074. Our team is here to help you navigate the complexities of home buying and ensure you make the most of your investment.