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What Is Home Appreciation And How Is It Calculated?

June 02, 2024 4-minute read

Author: Katie Ziraldo

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Everyone wants to believe their home’s value is on the rise, but the truth is that homes with little to no upgrades over time are typically in a constant state of depreciation. This isn’t the type of news you usually want to hear when it comes time to sell the property, so it’s important to be proactive about understanding home value and the factors that impact appreciation.

Knowing what home appreciation is and how it works could translate into a bigger sale price. We’ll explain what appreciation means, how it’s calculated and how you can increase it in your home.

What Does Home Appreciation Mean In Real Estate?

Home appreciation relates to a house or investment property increasing in value over time. Increasing property value can lead to bigger profits when selling or increased monthly rental income for investors.

Higher home value can translate to more equity in a home. Home equity is the difference between what you owe on your mortgage and what your home is worth. It represents, in dollars, the portion of the home you own outright. If you ever need cash, you can access this money through different loan and refinance options.

Home Appreciation Vs. Depreciation

As the names imply, home appreciation and depreciation are opposites. While appreciation refers to an increase in home value, depreciation refers to a decrease.

Several factors can lead to home depreciation. And like home appreciation, some factors – the housing market, the location of the home and neighborhood developments – are out of your control. Other variables that can lead to home depreciation include the home’s age and condition.

To maintain or minimize the decrease in a home’s value, homeowners can focus on regular maintenance, renovations and upgrades inside and outside their houses. Keeping up with the latest local real estate market trends should help you make strategic property improvement

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What Is The Average Home Appreciation Rate?

Home appreciation rates have increased year over year to 5.5% as of February 2024. But it’s important to note that appreciation doesn’t happen in a vacuum. Homes are in constant states of depreciation unless regularly maintained or renovated.

Appreciation rates can also fluctuate drastically due to changes in the housing market, so the current rate of appreciation doesn’t necessarily reflect future value.

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What Factors Affect Home Appreciation?

A range of factors can affect home appreciation. Some are within a homeowner’s control, and others can be harder to predict. The most common factors that impact home value include:

  • The housing market: The housing market can affect a home’s appreciation. Supply and demand play a critical role in appreciation In a seller’s market, home appreciation will increase. A buyer’s market may lead to home values plateauing or decreasing over time.
  • Location: The location of a home will impact its appreciation. While the national average can be a good indicator of overall trends, localized data displays how real estate appreciation can vary between cities, neighborhoods and property types.
  • Interest rates: Interest rate trends affect appreciation due to their impact on prospective home buyers. Low interest rates typically motivate buyers to buy now, which pushes
  • Home improvements: Home improvements and renovations can have the most significant positive impact on your home value over time.

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How Is Home Appreciation Calculated?

The simplest way to calculate home appreciation is to divide the change in the home’s value by the initial cost. You can multiply the result by 100 to calculate the change as a percentage.

For example, let’s say your home was valued at $200,000 when you purchased it, and its market value increased to $225,000. That’s a value increase of $25,000.

To calculate the appreciation percentage, we divide the change in home value ($25,000) by the original home value ($200,000), which equals 0.125. By multiplying 0.125 by 100, we can determine that the home’s value has appreciated by 12.5%.

If math isn’t your friend, the Federal Housing Finance Agency has a House Price Calculator you can use.

How Can You Add Value To A Home?

Are you searching for the factors you can control that will increase your home’s value? Home improvements, upgrades and renovations are the most surefire way to encourage home appreciation.

  • Exterior and interior upgrades: Enhanced curb appeal can go a long way toward adding value to a home, but interior renovations are equally valuable. If your home looks run down or outdated, it may be time to invest in some upgrades that can make your home easier on the eyes and easier to sell.
  • Increased energy-efficiency: Making a home more energy-efficient can increase the property’s value and decrease your monthly energy costs. One of the most popular energy-efficient upgrades is solar panels.
  • Increasing square footage: Increasing a home’s square footage can also increase its value. Consider adding a deck or building an The more square footage a home has, the more value it can hold.

FAQs About Property Appreciation

Home appreciation is as important to understand as it is complex. Let’s review the most frequently asked questions homeowners have about property appreciation.

How much does a house appreciate per year?

A home’s annual appreciation depends on the national appreciation rate, which is heavily impacted by fluctuations in the housing market. For the most accurate information, research appreciation rates in your area.

Do manufactured homes appreciate?

Manufactured homes permanently affixed to land (real property) historically appreciate at the same market rate as traditional stick-built homes, so you won’t have to worry about sacrificing future value if you choose this form of affordable housing.

What is the average home appreciation in the U.S.?

Home prices rose 6% in January 2024. While prices are expected to continue climbing in many areas, some markets have seen price decreases. A lot of this variation can be attributed to local housing market conditions and location.

The Bottom Line: Take Steps Toward Positive Home Appreciation

Whether you’re managing a rental property, flipping a house or investing in your dream home, home appreciation is a key factor that influences a property’s future value. Positive home appreciation can make it easier to rent a home and earn a high rental income or sell it and make a hefty profit.

Take steps to improve your house appreciation with home improvements, such as energy-efficient upgrades or increasing the square footage.

While you can’t control some factors related to home values, like interest rates and the housing market, you can be proactive and grow your home’s value through regular home improvements and upgrades.

If you’re ready to take the next step toward homeownership, start the approval process today with Rocket Mortgage®.

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Katie Ziraldo

Katie Ziraldo is a financial writer and data journalist focused on creating accurate, accessible and educational content for future generations of home buyers. Her portfolio of work also includes The Detroit Free Press and The Huffington Post.