If you've ever spent time looking at homes, you've probably heard the term "home price appreciation" floating around. But what exactly is it?
Home price appreciation is the increase in the value of a home over time. It’s the difference between what you pay for the home and what it’s worth at a later date. The appreciation is measured as a percentage of the original purchase price. For example, let’s say you buy a single-family home for $200,000. After a few years, the home is worth $240,000. That means the home appreciated by 20%, or $40,000. Home price appreciation is an important factor to consider when the Ascend acquisitions team decides to add a home to our Portfolio. Since 2000, the average rate of HPA has been 4.7%. And since 2012, the average rate has been 7.7%. Note that home price appreciation will vary significantly from state to state but this gives you a general range of how home values increase year over year. Home price appreciation in the markets we own homes has actually been hire than these averages.
When it comes to home price appreciation, there are a few factors to consider: location, supply & demand, economic growth, construction quality etc. We go into more detail below to define these factors.
The location of a home plays a significant role in its value. Properties in desirable areas, such as those with good schools, access to amenities, or proximity to job centers, tend to appreciate more rapidly than those in less desirable locations.
Supply and Demand
When there is high demand for homes but limited supply, home prices tend to increase. This can happen due to population growth, limited land availability, or other factors that restrict the number of available homes.
When the economy is growing, people tend to have more disposable income, which can increase demand for homes. Additionally, low interest rates can make it more affordable for people to buy homes, which can also increase demand.
(NOTE: On the contrary, rising interest and mortgage rates can have the opposite effect.)
The construction quality of a home can have an impact on home price appreciation. Homes that are constructed to higher standards, with better materials and workmanship, tend to appreciate in value more quickly than homes constructed with lower quality materials and workmanship. Additionally, homes that are well-maintained over time may also appreciate in value more quickly than those that have not been properly maintained.
Government policies, such as tax incentives for homeownership or regulations that restrict new construction, can also impact home prices.
When investors buy homes with the intention of renting or flipping them, this activity can drive up home prices in certain areas.
Ultimately, home price appreciation is a wonderful means to build long term, steady wealth. Our mission as a company is to provide easier access to this wealth creation tool for our communities.
The Ascend Team