When you hear the phrase home price appreciation, what does
it mean to you? Through context clues alone, chances are you know it has to do
with rising home prices. And as a seller, you know rising home prices are good
news for your potential sale. But let’s look past the dollar signs and dive
deeper into the concept. To truly understand home price appreciation, you need
to know how it works and why it matters to you.
Investopedia defines appreciation like this:
“Appreciation, in general terms, is an increase in the
value of an asset over time. The increase can occur for a number of reasons,
including increased demand or weakening supply, or as a result of changes in
inflation or interest rates. This is the opposite of depreciation, which is a
decrease in value over time.”
When we consider this definition and how it applies to real
estate, a few words stick out: supply and demand. In today’s real estate
market, we’re experiencing high buyer demand and very few sellers listing their
homes for sale (see maps below):
No matter the industry, anytime there’s more demand than
supply, prices naturally rise. It happens because buyers are willing to pay
more to secure the scarce product or service they’re looking for. That’s
exactly what’s happening in today’s real estate market. Buyers are competing
with one another to purchase a home, leading to bidding wars that drive prices
up. For sellers, the rising prices mean that opportunity is knocking.
According to Quicken Loans, the national average home price
appreciation rate is between 3-5% in a typical year. Today, home prices are
appreciating well beyond the norm thanks to high demand. Here are the latest
expert projections on the rate of home price appreciation for this year (see
chart below):
Compared to the normal pace of 3-5% appreciation per
year, the current average forecast of nearly 11.5% is significant.
For sellers, this means that with the current rise in
prices, your house may be worth more than you realize. That price appreciation
helps give your equity a boost. Equity is the difference between what you owe
on the home and its market value based on factors like price appreciation. It
works like this (see chart below):
You can use your built-up equity to power a move into your
dream home, or you can put it toward life-changing goals like funding an
education or opening a business.
But don’t wait. While price appreciation is strong now,
those same experts say it’ll start to appreciate at a more normalized pace next
year. If you list your house sooner rather than later, you’ll be in a better
position to capitalize on the higher-than-average home price appreciation we’re
seeing today.
Bottom Line
If you’re thinking of selling your house, there really is no
time like the present. Let’s connect so you can get an expert market analysis
of your home and its potential.
Source: Real Estate with Keeping Current Matters
