Your home is more than just a place to live — it’s a long-term investment. As you make mortgage payments, you’re not only covering the cost of the loan, you’re also building equity, which grows over time. Home appreciation — the increase in your home’s value — plays a big role in this process. Here’s a breakdown of what you need to know about home appreciation and how it can help you.
What is Home Appreciation?
Home appreciation refers to the rise in your home’s value over time. This increase is influenced by a variety of factors, including your local real estate market, the condition of your property, and any upgrades or renovations you’ve made.
As your home’s value increases, so does your home equity. Equity is the difference between the amount you owe on your mortgage and your home’s market value. Your equity grows as you pay down your mortgage and as the value of your home appreciates. But it’s important to note that home appreciation is not guaranteed — home values can also fall, known as depreciation, which may decrease your equity.
What’s the Average Home Price Increase Each Year?
Nationally, home prices have seen significant increases in recent years. From April 2021 to April 2022, home values surged by 18.8%, according to the Federal Housing Finance Agency (FHFA). This was well above the historical average.
Here’s a look at the average annual home price increases over different periods:
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Since 1991: 4.3% annually
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Since 2000: 4.7% annually
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Since 2012: 7.7% annually
Home appreciation can vary significantly from state to state. For instance, Florida saw a nearly 30% increase in home values from 2021 to 2022, while North Dakota’s values rose by about 10%.
In the long run, home values have generally increased. Between 1940 and 2000, the average home value quadrupled, even after adjusting for inflation. However, during the Great Recession (2007-2010), home values saw a significant decline.
What Factors Affect Home Appreciation?
The rate at which your home appreciates depends on more than just national trends. A number of factors influence your home’s value, including:
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Location: A home in a desirable neighborhood, near good schools, or close to major employment centers tends to appreciate faster than those in less popular areas.
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Supply and Demand: If homes in your area are in high demand but there are few available, your home’s value can rise quickly.
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Condition and Age of the Home: Older homes may not appreciate as quickly or could even lose value if they need significant repairs. Well-maintained homes or those that have been updated or renovated tend to appreciate faster.
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Upgrades and Improvements: Renovations and updates can add value to your home. For example, a kitchen remodel or replacing the roof can significantly boost your home’s value.
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Real Estate Comparables: The sales prices of similar homes in your area (comps) are often used to determine your home’s value. If similar homes are selling for higher prices, your home will likely increase in value as well.
Can You Add Value to Your Home?
Yes, you can actively increase your home’s value through improvements and renovations. Some of the most cost-effective updates include:
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Minor Kitchen Remodels: This can add more than $20,000 to your home’s value, according to the 2022 Remodeling Cost vs. Value Report.
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Roof Replacement: Replacing an asphalt shingle roof can increase your home’s value by almost $19,000.
However, it’s important to keep in mind that you won’t always see the full return on your investment. Typically, only a percentage of what you spend on upgrades will be reflected in your home’s increased value. Focus on improvements that enhance your enjoyment of the home, not just for the purpose of increasing its market value.
How Home Appreciation Can Help You
Home appreciation is a powerful way to grow your wealth. As your home’s value increases, so does your equity. If you’ve built up enough equity, you can borrow against it for a variety of purposes, including home improvements, debt consolidation, or covering unexpected expenses.
There are two common ways to tap into your home’s equity:
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Home Equity Loan: This allows you to borrow a lump sum of money using your home as collateral. You’ll repay it in equal installments over a set period of time. These loans are often referred to as second mortgages.
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Home Equity Line of Credit (HELOC): This works like a credit card, giving you a set credit limit that you can borrow from as needed, with the option to borrow and repay multiple times during the draw period. You only pay interest on the amount you borrow.
However, be cautious. If you fail to make payments on either a home equity loan or HELOC, you risk foreclosure, as the loan is secured by your home.
Final Thoughts
Home appreciation is an essential aspect of building wealth as a homeowner. While it’s not guaranteed, you can increase the value of your home through strategic improvements and by staying informed about the local real estate market. Plus, if you’ve built up significant equity, you can use it to fund home projects or other expenses.
If you’re curious about your home’s value and want to track your equity, start by checking online home value estimators or working with a real estate agent to get an updated appraisal. The better you understand your home’s value, the better positioned you’ll be to make decisions about your future home-related finances.
For more financial tips and guidance, visit Creditvana.com and stay on top of the latest trends and strategies for building wealth through homeownership.
