Historically, home appreciation has always been a factor when purchasing a house. Home appreciation remains consistently high in today’s market, providing sellers with an opportunity to list their homes at higher prices. This doesn’t mean that potential buyers should steer clear of the market — they may just need to rethink their approach.
Before making a major decision, a buyer should consider the pros and cons of purchasing a house. What may seem like a risky investment today could harvest returns for years to come.
Let’s look at what drives home appreciation and what buyers can expect in the future moving forward.
What is home appreciation?
Before we dive into the effects of home price appreciation, let’s review its definition and how it applies to the decision process.
Home appreciation is the increase in the value of a home or property over a period of time. An increase often allows homeowners to profit either through selling or renting the house.
In contrast, home depreciation is the decay of a home or property’s worth over a given timeframe. Determining the value of the home or property is key to assessing the overall value and worth.
What causes home prices to increase?
There are a few ever-evolving pieces that result in home prices significantly increasing. The factors include:
- Economy Health
- Interest Rates
- Home Renovations
These elements are major components that create home appreciation. Let’s take a deeper dive into the cause and significance of each component.
Location, location, location. It’s often one of the most talked-about elements of real estate and can make or break a deal. Home appreciation will generally rise alongside the neighborhood it’s located in. Areas with impressive local school ratings, low crime rates, and a community atmosphere typically feature higher-priced homes.
Home appreciation is often a reflection of the state of the housing market. The market signals the fragility or stability of the economy, thus supporting a purchasing decision. When there is a stable economy, it’s common to see home appreciation increase. Likewise, a shaky economy often has the opposite effect.
When interest rates are low, more buyers generally enter the market. The main reason for the uptick in demand is that a low-interest rate equates to lower monthly payments and an easier path to mortgage payoff.
Home renovations are considered a vanity metric, but particular home improvements can transcend the property into home appreciation. For instance, implementing modern features and systems can significantly increase the value of a home.
What to expect from the housing market in the coming years
Predicting the future status of the housing market is often a measure of everyone’s best guess. However, recurring trends can help us make assumptions about how the market will hold up in the future.
As we look ahead to the coming years, there are few signs that the increase in housing prices will slow down. Buyers who wish to purchase a home should consider buying now. Otherwise, natural home appreciation could push prices even further up.
The good news is that purchasing a house now should allow you to benefit from an increase in equity as the value of your home grows with the market.
Melody Smith & Associates is a longtime leading broker associate in South Orange County, known for superior service, and is in the top 1% of 1% of agents in the country. Please contact us for all of your real estate needs. 949-401-7033. It matters who you work with.