What is Appreciation?
In real estate, appreciation is when a given property increases in current market value relative to its historical price. When the property decreases in value, it's referred to as "property depreciation". Keep in mind that appreciation and depreciation can be subjective so, until the appreciation is realized via a transaction (eg. purchase or sale), expectations may vary.
Quicken Loans states that properties historically appreciated between 3% to 5% annually nationwide.
What impacts appreciation?
Appreciation can be impacted by factors that influence the supply and demand:
- Macroeconomic environment. The overall housing market and national economy can impact appreciation. If the economy is experiencing slower growth, there may be lower demand in the market and cause lower appreciation or even property depreciation.
- Interest rates. If the cost to obtain loans is more expensive, property investors may be less willing to buy.
- Market. In some attractive markets, demand may outpace supply resulting in faster appreciation. If more people want to move to an area and there is finite supply, some people may end up bidding up the price of the home.
- Renovations and Rehabs. If you improve the home, it can make the home more attractive as it's a more desirable property to live in.
According to Zillow Research, home owners earned more from appreciation than their income in 2021!