Understanding Real Estate Appreciation: What Every Investor Should Know

What is Real Estate Appreciation?

Navigating the uncertain terrain of real estate appreciation amidst the backdrop of COVID-19's impact on the economy may seem daunting. However, understanding the dynamics of property appreciation can empower homeowners and investors to make informed decisions, especially when considering home improvements to bolster property value during challenging times.

At its core, real estate appreciation signifies the growth in the value of a property over time. This increase can be attributed to various macroeconomic factors, including inflation, economic development, and job opportunities within the local market. Over time, the property's value has the potential to increase, thereby translating into profit upon resale or higher monthly rental income. This demonstrates the intrinsic value of real estate appreciation as a wealth-building tool.

The median price to purchase a home in 1950 was $7,354. The median price of a home in 2020 was $336,900. So the annual growth rate for home owners in the last 70 years is a whopping 5.6%. This might seem like a lackluster investment when compared to other channels, but it is important to remember that the home appreciates based on the entire value of the home. So depending on how much value is locked up in the home, the real investment is appreciating at a much higher rate. For example, if an owner has 20% equity on a $300,000 property the year-over-year appreciation is $16,800, but the owner only has $60,000 invested which yields a whopping 28% return on equity.

Key Factors Influencing Real Estate Appreciation

Location: Location is a critical determinant of property value. Properties in desirable neighborhoods with good schools, amenities, and proximity to employment centers tend to appreciate faster than those in less desirable areas.

Economic Conditions: Economic factors such as job growth, income levels, and overall economic stability can impact real estate appreciation. Strong economic fundamentals often correlate with higher property values.

Supply and Demand: The balance between supply and demand in the housing market plays a significant role in property appreciation. Limited inventory and high demand can drive up prices, leading to appreciation, while oversupply may suppress appreciation.

Inflation: Inflation erodes the purchasing power of currency over time, leading to higher prices for goods and services, including real estate. As the cost of living increases, property values tend to appreciate to keep pace with inflation.

Force Real Estate Appreciation

While market appreciation is determined by the above key factors, there are many ways that homeowners and investors alike can "forcee" appreciation. Making targeted home improvements can significantly enhance property value. Some proven upgrades include bathroom renovations, kitchen remodels, window replacements, and the addition of outdoor living spaces like decks or patios. These improvements not only enhance the aesthetic appeal and functionality of the property but also contribute to its overall market value.

One notable advantage of increasing property value through home improvements is the concurrent rise in home equity, particularly for homeowners with mortgages. As the property appreciates in value, homeowners build equity, which serves as a valuable asset and financial cushion in times of need.

While the current economic landscape may present challenges, focusing on increasing property value through strategic home improvements can provide a tangible way for homeowners and investors to weather the storm. By investing in upgrades that enhance both the property's appeal and marketability, individuals can position themselves for long-term financial success in the ever-evolving real estate market.

Top 7 Real Estate Appreciation Markets

Austin, Texas: Austin has experienced rapid population growth fueled by its vibrant tech sector, favorable business environment, and high quality of life. The city's real estate market has seen strong demand and rising home prices.

Phoenix, Arizona: Phoenix boasts a booming economy, affordable housing, and a favorable climate, attracting both businesses and residents. The real estate market in Phoenix has been one of the fastest-growing in the country, with increasing home sales and prices.

Boise, Idaho: Boise has emerged as a popular destination for people seeking a more affordable and outdoor-oriented lifestyle. The city's real estate market has seen significant growth, driven by strong demand and limited inventory.

Nashville, Tennessee: Nashville's diverse economy, vibrant culture, and booming music scene have contributed to its rapid population growth. The city's real estate market has been thriving, with rising home prices and a competitive housing market.

Charlotte, North Carolina: Charlotte has become a major hub for finance, technology, and healthcare industries, attracting residents from across the country. The city's real estate market has experienced steady growth, with increasing demand for housing and rising home prices.

Tampa, Florida: Tampa benefits from its sunny weather, diverse economy, and affordable housing options. The city's real estate market has seen strong growth, with high demand for homes and increasing property values.

Denver, Colorado: Denver's booming economy, outdoor recreational opportunities, and cultural amenities have made it a magnet for young professionals and families. The city's real estate market has been growing rapidly, with strong demand for housing and rising home prices.