All You Need to Know about Home Appreciation
Home price appreciation has been straightforward in recent years due to the significant gains in the housing market. However, with prices still elevated and interest rates fluctuating, market conditions can shift rapidly. Understanding how home appreciation functions and learning how to leverage it can help you navigate changing market dynamics effectively.
What is home appreciation?
Real estate appreciation refers to the rise in your home’s value over time, while the opposite—real estate depreciation—refers to a decline in value.
In recent years, home values have surged significantly. For example, the median price of an existing home reached a record high of $426,900 in June 2024, according to the National Association of Realtors. Homeowners who have held onto their properties for a while are likely to have seen considerable appreciation. However, future increases in home value may be slower or more challenging to achieve.
How to calculate home appreciation
Calculating home appreciation is straightforward. Begin by taking the current value of your home and subtracting the purchase price. If you’re unsure of the original purchase price, you can often find it on real estate websites like Redfin or Zillow. Next, divide the difference between the current value and the purchase price by the original purchase price.
For example, if you bought a home five years ago for $300,000 and its current value is $425,000, the appreciation rate would be 41.6 percent. Here’s the math: $425,000 (current value) minus $300,000 (purchase price) equals $125,000. Then, $125,000 divided by $300,000 equals 0.416, or 41.6 percent. You can use an online percentage change calculator to simplify this process.
What’s the average home appreciation rate?
The national housing market has experienced positive annual appreciation every quarter since early 2012, according to a recent report by the Federal Housing Finance Agency (FHFA). While some homeowners may not see the dramatic increase depicted in the example above, the FHFA report indicates a 5.7 percent rise in home prices from Q2 2023 to Q2 2024, and a 0.9 percent increase from Q1 to Q2 of 2024.
However, the average rate of home appreciation can vary significantly by location and is influenced by local market conditions. For instance, between Q2 2023 and Q2 2024, Syracuse, New York, experienced a 14.2 percent increase in home prices, while the Austin, Texas, area saw a 3.2 percent decline.
Ways to add value to your home
While homes generally appreciate over time, you don’t have to simply wait for their value to rise. By taking proactive steps and investing in home-improvement projects, you can enhance your home’s value and potentially increase its appreciation.
Several projects can boost your home’s resale value and maximize appreciation, including updating and modernizing decor, installing energy-efficient appliances, refreshing landscaping, or increasing usable square footage.
Though major renovations often don’t yield a 100 percent return on investment, they can still be worthwhile. According to the National Association of Realtors’ most recent Remodeling Impact Report, some projects not only increase resale value but also enhance your enjoyment of your home. Here are a few high-impact projects:
- Refinishing Hardwood Floors: This project offers an impressive estimated cost recovery rate of 147 percent and receives a perfect joy score of 10 out of 10.
- Converting an Attic into Living Space: This renovation has an estimated cost recovery rate of 75 percent and a joy score of 10.
- Complete Kitchen Renovation: This upgrade also boasts a 75 percent estimated cost recovery rate and a joy score of 9.8.
In Conclusion
Home price appreciation reflects the increase in your home’s value over time. While recent years have seen exceptionally high appreciation rates, you can further boost your home’s value by undertaking improvements that not only enhance your living experience but also help you achieve a better sale price when you decide to sell.
