Homeowners, real estate investors, and real estate agents all put their faith in one key fact: long-term, home prices tend to go up. This is called home appreciation, and it is one of the most common ways to build wealth. Understanding your home appreciation outlook can help you decide to buy or sell a home, select investment properties, or simply plan your financial future.
Home appreciation also opens the door for tapping into your home equity with a home equity loan or another financial product, such as a home equity investment. In this article, we’ll cover average home appreciation per year, and what you can do to help your property value grow.
What is the average home appreciation per year?
Average home appreciation per year in the United States is between 3% and 5% – but this can vary greatly depending on where you live, what type of property you own, and general market conditions. Let’s talk about a few of the things that can affect your average annual home value increase over time.
Factors affecting home appreciation
Some factors that affect home appreciation are things you can do as a homeowner – while some are greater forces outside your control.
- Real estate market trends
The housing market is complex and impacted by trends on both a national and local level. Has your home’s location surged in popularity, or is your area experiencing a population downturn? How is the local job market doing? One of the main factors impacting the sales prices of homes is the law of supply and demand. If more people want to buy houses in your neighborhood than there are houses available for sale, prices will soar. If people are trying to sell their homes, but no one is buying, prices will start dropping.
- Interest rates & economic conditions
Some trends take place on a national level. In times of economic downturn, fewer people can afford to buy a home, and more people default on their mortgage obligations. This drives home prices down. During economic booms, unemployment is low and salaries are high, which floods the market with potential home buyers, driving prices up. How the Fed sets interest rates also impacts home affordability, and thus prices. Higher interest rates make it harder for buyers to afford a home – which leads to fewer buyers – and vice versa.
- Property type
Not all property types appreciate at an equal rate. A rural farm or a one-bedroom condo will not increase in value in the same way as a single-family home. The more popular the property type, the faster the home will appreciate in value.
- Maintenance & home improvements
If you walk around your block – unless you are in a brand-new subdivision – you may notice that not every home looks the same. Some homes will have updated features and beautiful landscaping, some homes will have visible signs of wear and tear. Taking good care of your home will keep its value rising. Certain types of home improvements can also increase your home value even further.
How to add value to your home
While you can’t control the real estate market or how the Fed sets interest rates, you are in full control of how you maintain and improve your home. Not all home improvements and renovations are created equal. Prioritize making the changes that will have the biggest impact on your home value. Here are a few popular options:
- Square footage – Any improvement that increases the official square footage of your home will have the largest impact on property value.
- Energy efficiency – Energy-efficient upgrades raise sales prices – and will save you money monthly while boosting your home value.
- Curb appeal – There is a reason that real estate agents prioritize the face of the home and the front yard. If you keep your home appealing, you keep its value rising.
- Mindful interior upgrades – Not every interior home improvement is created equal, but keeping your home updated and functional is key. Prioritize upgrading elements that are worn out.
How to prevent depreciation in your home
Growing your home value is important – but keeping it from falling can have an even larger impact. Every asset can depreciate if it isn’t properly maintained. Proper home maintenance is not optional – it’s crucial for your home’s safety, comfort, and continued appreciation.
Deferred maintenance can and will tank the value of your home. A few key tips:
- Make a home maintenance checklist and stick to it.
- Set an annual home maintenance budget based on your checklist.
- Keep your eye on bigger-ticket maintenance items like your roof, furnace, and siding. Start saving for these costs in advance.
- Every part of your home has a lifespan. By being proactive, you can extend that lifespan and be prepared when the time comes to pay for a major replacement item.
FAQs
How do you calculate house appreciation?
Home appreciation is calculated by looking at the percentage that your home value has risen – or will rise – over time. You can do this using a mathematical formula (or an online calculator). A formula you can use to calculate appreciation:
Final value = Starting value x (appreciation rate percentage + 1) appreciation period
This formula works both for calculating how much your home has appreciated so far, and for calculating how much it may appreciate in the future.
How much will a house appreciate in 10 years?
While no one can predict the future, you can use national or local averages to estimate how much the value of your home may grow in 10 years. Since typical home appreciation is between 3% and 5% on average – although this can very by metro – you can use this as a baseline to estimate a range. A house that is worth $500,000 today will be worth about $672,000 in 10 years if it appreciates at 3% per year, and approximately $814,000 if it appreciates at 5% per year.
How do I calculate the future value of my home?
You can calculate the (estimated) future value of your home using the following formula:
Final value = Starting value x (appreciation rate percentage + 1) appreciation period
Let’s look at an example for a $500,000 home with a 5% appreciation value, over five years:
Final value = $500,000 x (5% + 1) 5
Final value = $500,000 x 1.055
Final value = $638,140.78
Of course, this is just an estimated future value – nobody can tell you exactly how much your home value will grow.
Will my house increase in value in 5 years?
The real estate market does not come with any guarantees, but generally, home value tends to increase over time. Five years is a long enough stretch to equalize many short-term bounces, and most (but not all) homeowners will see a higher property value five years down the line.
Final thoughts
Your home is one of the most valuable things you will ever own and a big part of your financial outlook. By understanding average home appreciation per year, you can predict how your home value will grow over time, and make plans to keep your home value growing. As your home appreciates and you pay down your mortgage, you’ll gain more home equity. If you are looking to tap into your home equity with no monthly payments and no income requirements, consider a Home Equity Investment from Point. As part of our online application process, you’ll see a variety of home appreciation scenarios for your property.
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