What is Home Appreciation: Understanding Equity, Investment Potential, & Housing Market Trends
Buying a home is not just a personal decision for you and your family, it is also a financial decision that has ramifications deep into the future. People purchase and invest in real estate because they expect the value of that real estate to increase. The increase of value over time is what the real estate industry refers to as home appreciation. How much your home appreciates depends on several internal and external factors. Let’s take a look at them.
The Basics of Home Appreciation and What You Need to Know
Every homeowner wants their property to increase in value. There are actions homeowners can take that will directly affect the value of a property. At the same time, there are factors that will impact a home’s value that are completely out of the homeowner’s control. Here’s the bigger picture:
A homeowner can take steps to enhance their home’s value. The trick to making upgrades that impact home value is making the right improvements and doing so in a smart way. Homeowners can do so through:
- Home improvements: This includes upgrades to the home’s exterior and interior. A little research can help you get an idea of the types of upgrades that raise home values. Typically, these will include kitchen remodels, bathroom upgrades, fresh paint, flooring, etc.
- Home additions: Adding square footage to the home is a pricey but worthy investment. Of course, not every homeowner has the cash on hand for this, but a long-term plan for something like this can be a long-term strategy to increase value.
- Home technology and energy efficiency: Smart home technology and energy-efficient appliances are all the rage. The ability to maximize energy savings is a big factor in a home’s value today. Everything from Low-E windows, smart thermostats, refrigerated air, improved water heaters, etc.
Then there are the factors that are not under the homeowner’s control. These include:
- Interest rates: Case in point: 2020 Covid pandemic. This took everyone by surprise and it certainly surprised people in the real estate industry as markets were swarming with buyers. As interest rates drop, affordability rises and opens up the markets to more buyers.
- The national economy: Several indicators measure the health of the economy and the general rule of thumb is when these indicators are lagging, so is the real estate market. When GDP suffers, unemployment or inflation rises, the market always takes a hit.
- Legislative changes: The country’s growth and prosperity are often directly impacted through legislation. Government policies can increase or decrease people’s ability to enter the housing market through things like first-time homebuyer’s tax credit, or other deductions, credits, and subsidies.
- Local conditions: The location of the home, as well as local trends, have an immediate impact on a home’s appreciation. If your city is investing in infrastructure, new amenities, or new schools, this impacts your home’s value.
What is the Average Appreciation for a Home in the U.S?
The appreciation rates vary depending on various economic factors but the real estate industry is keen on following these numbers and trying to predict what a particular year might look like. Reports suggest that homes in the United States rose again in April of 2021. Some data suggest that home appreciation rates in the past year or so—since the start of the Covid pandemic—have increased owner equity levels by more than $1.5 trillion dollars. As real estate experts will tell you, much of these gains are due to the consistent lack of supply.
The World Property Journal reported that homes in the U.S. jumped to 5.9 percent annually despite the pandemic
Home Appreciation in El Paso, Texas
Like in many places across the country, the El Paso housing market experienced a significant boom during the Covid pandemic. This took everyone by surprise. Prior to this, El Paso real estate had improved since the housing crash and is heading in the right direction in terms of appreciation.
The affordability of the El Paso market makes it a very unique anomaly, as it is in a widely popular state of Texas. In 2015, for example, homes appreciated an average of $2,192 over the course of a year. In 2020, according to data from NeighborhoodScout, the appreciation rates in El Paso were .94%, which is equal to a national average of 3.80%. While not as high as other major metropolitan areas in Texas like Austin and Dallas, El Paso is headed in the right direction and has shown considerable growth in the past couple of years.
What Does Home Appreciation Mean in Practical Terms
You might hear of home appreciation all the time but the term can seem relatively abstract. Think of it this way, as a property gains value, you accumulate benefits. The benefits can manifest as:
- The ability to sell the property for a higher price than you bought it
- Increased equity
- The ability to tap into home equity through cash-out refinance, home equity loan, or home equity line of credit
The above creates an opportunity for you to make home improvements or put in a down payment for a new investment
Wondering About Your Home Equity and the Right Time to Sell? Contact Brian Burds
If you’re thinking about selling your home, but are not quite sure if you have the timing right, we can help you assess some of these questions based on your circumstances. Putting your home on the market at the right time can make a big difference in your selling experience and selling price.
Call the Brian Burds Home Selling Team and we’ll guide you through what you need to know!