Given the housing market’s astronomical gains in recent years, increasing home prices has been relatively easy to achieve. But that’s starting to slow now as interest rates rise. Learning how home appreciation works — and how to make it work for you — can help you weather any type of market condition.
What is real estate appraisal?
Real estate appreciation is the increase in value of your home over time. The opposite would be real estate depreciation, which represents the depreciation of your home over time.
Home values have risen sharply in recent years: In January 2022, the average nationwide home value increase, according to the CoreLogic Home Price Index, reached 19.1 percent, the highest level in 45 years. However, there are signs that things are cooling down now. New single-family home sales in April 2022 fell 26.9 percent from April 2021, according to data from the Census Bureau and the U.S. Department of Housing and Urban Development.
Those who have been living in their homes for a while will likely retain the appreciation they have benefited from in recent years, but future appreciation may be slower or more difficult to achieve.
How is appreciation calculated?
Calculating real estate appreciation is easy. Take the current value of your home and subtract the original purchase price of the home. If you’re unsure of the original purchase price of your home, you may be able to see the sale amount on a website like Redfin or Zillow. Once you have the difference between the price you paid and your current market value, divide that number by the original value.
Let’s say you bought a home in April 2019 for the then-national median selling price, which was $289,052, according to Redfin data. If this home were now valued at the nationwide median selling price of $424,146 as of April 2022, that would represent an appreciation rate of 46.7 percent. ($424,146 minus $289,052 equals $135,094 and $135,094 divided by $289,052 equals 0.467.) An online percentage change calculator can help you work out the numbers.
What is the average home appraisal?
Not everyone experiences the wild surge in home value in our hypothetical example above. According to the CaseLogic report, the nationwide annual increase in value for single-family homes was 20.3 percent in January 2022. For connected properties, it was slightly lower: 15.2 percent.
In addition, the average housing value estimate varies greatly depending on the location. For example, Colorado’s home appraisal rate from December 2020 to December 2021 was 19.7 percent, while Illinois’ rate was 11.9 percent over the same period. Breaking down the statistics by county and city reveals even more drastic differences.
Ways to upgrade your home
Of course, you don’t have to sit back and passively hope for an increase in the value of your home. You can actively help with value-added DIY projects. By investing in projects that can increase your potential selling price, you can maximize your home’s appreciation.
Big projects rarely yield a 100% return on investment — but that’s not necessarily a reason to avoid them. The National Association of Realtors’ annual Remodeling Impact Report also considers what the NAR calls a “joy” score, which takes into account homeowners’ satisfaction with their renovations while still living there. If you’re looking for a more enjoyable home with later resale value, here are a few projects to focus on.
- Hardwood floor refinishing wins all with a whopping estimated cost recovery rate of 147 percent and a perfect satisfaction rating of 10 (out of 10).
- Converting an attic into living space has an estimated cost recovery rate of 75 percent with a Joy Score of 10.
- Even a complete kitchen renovation has an estimated cost recovery rate of 75 percent and a Joy Score of 9.8.
For those on a tighter budget, there are many ways to add value when it comes to selling without spending a fortune. This includes deep cleaning and decluttering, color refreshment and updating of lighting fixtures and kitchen appliances.
Home appreciation is the increase in value of your home over time. With the extremely hot housing market in recent years, home price increases have been extremely high. But the record-breaking gains we’ve seen over the last year in particular are unlikely to continue.