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Edited by Galina Velgach
Written by Felicia Oliver
Edited by Galina Velgach
Causes of appreciation | Effects of appreciation | Calculating appreciation | FAQs
Appreciation means that a property’s value grows over time.
Historically, homes in the U.S. have appreciated 2–3% per year on average. But from 2020 to 2022, home appreciation rates were significantly higher — in the double digits in most of the country.
A variety of circumstances can affect appreciation rates, some of which are unpredictable. For example, home values plummeted when the housing bubble burst in 2008, and they skyrocketed soon after the COVID-19 pandemic started.
Housing market trends, at a glance
Home prices across the U.S. rose in the first three months of 2022 at an annualized rate of 12.8%. Some studies show housing is overpriced by as much as 30% today, and by as much as 50–70% in some parts of the U.S.
But signs point to slowing home sales. Purchases of new single-family homes decreased 16.6% in April 2022, the most in nearly nine years.
Home prices are not expected to depreciate until 2023.
Market value vs. appraised value
- A home’s market value is what it can be sold for — what the housing market will bear based on supply and demand.
- Appraised value is what a home is worth as determined by an appraisal professional.
In a “hot” real estate market, a house may be overpriced — meaning it sells for more than its appraised value.
» LEARN: How to determine the fair market value of a home
What causes a home’s value to appreciate?
A strong housing market
If home values are increasing overall, your home value will likely increase as well. But the market can fluctuate and be unpredictable.
For example, during the housing bubble and bust of 2008–09, prices fell by a record 9.5% — to $197,100 in 2008, down from $217,900 in 2007.
And once the coronavirus pandemic hit, the yearly increase in home prices jumped into double digits: median single-family existing-home prices rose 15.7% between May 2021 to May 2022. The year-over-year rate in the prior quarter was 14.3%.
Location
Certain neighborhoods, cities, and states become attractive places to live because of their schools, reputations for safety, nearby job opportunities, and the like. That can drive home prices up in those areas.
For example, home values in Bellevue, WA, skyrocketed after Amazon announced it would open a new office space there and hire 25,000 new employees.
And in Toledo, OH, home values are trending down following major job losses in the 2008 recession and the closure of the Jeep Cherokee plant in 2018 that laid off 3,700 workers.
Low interest rates
Low interest rates means it costs less to get a loan, making buying a home more affordable. This drives up demand, which means prices are also likely to go up.
However, the Federal Reserve recently raised interest rates to fight inflation. Demand may soon decrease, so home prices are also likely to decline.
Valuable home improvements
If you make upgrades to your home, you may end up increasing its market value. Upgrades that are valued in the market are:
- Minor bathroom remodels
- Minor kitchen remodels
- Window and siding replacements
- Deck or patio additions
» JUMP: How can I increase the value of my house?
📉 Keep in mind that if any of these conditions go south, a property can depreciate in value.
Why does appreciation matter?
The value of a property affects a number of other financial factors.
📉 If the value of your home depreciates, you may end up “underwater” — owing more on your mortgage than it’s worth. And if you try to sell your home, you could end up getting little to no profit, or worse, have a net loss from the sale.
Equity
Equity is the difference between the value of your home and the amount you owe. As your home increases in value, and you continue to pay down your mortgage, your home equity grows.
Increasing equity is what makes owning a home a profitable investment. You can borrow against your equity for home improvements, to pay down high interest card debt, travel, your kids’ education, or any other large expense down the road.
And if you sell your home, you can pocket the profit you earn from the equity you’ve built.
Property taxes
Your property taxes are based on a tax assessment, which is partially based on the fair market value of your home.
Taxes may be high if you live in an area where the housing market is hot. Homeowners who don’t sell could be stuck with rising tax bills.
Some states or municipalities have laws to prevent property taxes from jumping along with inflated property values. In California, for example, annual assessment increases are capped at 2% until a property is resold.
Rent prices
Whether you’re a tenant or landlord, higher home values usually means higher rent. In a popular market where property values are rising quickly, landlords might set rent to keep up with property taxes, maintenance, and other costs.
How is appreciation calculated?
Calculate your local appreciation rate | Estimate your home’s current value
If you know your home’s current market value, you can figure out how much it’s appreciated by using this equation:
| Annual appreciation rate = (change in home value / original purchase price × 100) / # of years owned |
Let’s say you purchased your home for $200,000 five years ago, and its market value is now $225,000. This is a value increase of $25,000.
| $25,000 / $200,000 × 100 = 12.5% / 5 years = 2.5% annual appreciation rate |
Find home appreciation rates in your area over the past three years:
| State | 3-Year Appreciation |
|---|---|
| California | 45.00% |
| Texas | 44.70% |
| New York | 29.50% |
| Florida | 57.70% |
| Illinois | 26.80% |
| Pennsylvania | 34.20% |
| Ohio | 38.30% |
| Michigan | 37.40% |
| Georgia | 52.30% |
| North Carolina | 53.50% |
| New Jersey | 35.50% |
| Virginia | 30.10% |
| Washington | 55.10% |
| Massachusetts | 36.90% |
| Indiana | 40.60% |
| Arizona | 71.70% |
| Tennessee | 53.30% |
| Missouri | 36.90% |
| Maryland | 27.60% |
| Wisconsin | 34.70% |
| Minnesota | 30.20% |
| Colorado | 45.80% |
| Alabama | 40.80% |
| South Carolina | 47.30% |
| Louisiana | 23.50% |
| Kentucky | 34.20% |
| Oregon | 42.10% |
| Oklahoma | 36.80% |
| Connecticut | 36.40% |
| Iowa | 23.40% |
| Mississippi | 29.30% |
| Arkansas | 35.60% |
| Kansas | 31.60% |
| Utah | 63.40% |
| Nevada | 52.00% |
| New Mexico | 45.00% |
| West Virginia | 24.30% |
| Nebraska | 32.60% |
| Idaho | 70.20% |
| Hawaii | 34.30% |
| Maine | 50.40% |
| New Hampshire | 47.90% |
| Rhode Island | 42.30% |
| Montana | 57.00% |
| Delaware | 33.50% |
| South Dakota | 36.00% |
| Alaska | 12.10% |
| North Dakota | 17.50% |
| Vermont | 36.20% |
| Washington D.C. | 12.50% |
| Wyoming | 27.80% |
Note that appreciation rates within a state can vary widely. For example, in California, appreciation rates range from 22.30% in Red Bluff to in 57.90% in San Diego.
If you know your local appreciation rate, you can figure out how much it’s worth today.
The increase in appreciation compounds each year. So you earn appreciation on both your home’s new value plus the amount of appreciation earned:
| Appreciation amount = annual compounded appreciation rate × original purchase price × # of years owned |
If you purchased your home for $200,000, and yearly appreciation in your area is 3.5%, this is how it can appreciate each year:
3.5% compounded × $200,000 × 5 years = $37,537.27
| 3.5% compounded × $200,000 × 5 years = $37,537.27 | |||
|---|---|---|---|
| # of years owned | Amount appreciated | Appreciated value | |
| 0 | $200,000 | ||
| 1 | $7,000 | $207,000 | |
| 2 | $7,245 | $214,245 | |
| 3 | $7,498.58 | $221,743.58 | |
| 4 | $7,761.03 | $229,504.61 | |
| 5 | $8,032.66 | $237,537.27 |
You can also use our handy calculator to estimate the dollar amount of appreciation on your home based on the appreciation rate in your area.
How can I increase the value of my house?
Upgrades
Bathroom and kitchen remodels, particularly when the originals are outdated, are improvements that have shown to increase property value. So is updating to more energy-efficient windows or adding a deck or patio, particularly with increased interest in outdoor activities and entertaining after the pandemic.
Specific features like hardwood flooring, tankless water heaters, and new exterior siding are all fairly easy upgrades to install, relatively inexpensive, and have been proven to be popular with potential home buyers.
Regular maintenance
One of the best ways to maximize your home’s value is to stay on top of routine maintenance.
Servicing furnaces and air conditioners, cleaning gutters, maintaining the landscape, and fixing cracks in the driveway or sidewalk are just some things that enhance curb appeal — and save the buyer the time and expense of having to address these issues once they buy the home and move in.
Neglecting these home projects can slowly chip away at your resale value.
FAQs about home appreciation
What does home appreciation mean?
It's when a house or investment property increases in value over time. A hot housing market, popular region, and popular features can lead to appreciation. Conversely, a weak housing market, bad location, high interest rates, or poor maintenance can cause a home to LOSE value (depreciate).
What is the annual appreciation on a home?
Historically, 2–3% per year, but that can be affected by a variety of unpredictable circumstances (e.g., the pandemic).
How is home appreciation calculated?
To calculate the rate of appreciation, divide the change in the home’s value by the initial cost and multiply it by 100. Learn how to calculate your home value.
How much should a house appreciate in 10 years?
Markets fluctuate and rates are regional, but given an average yearly appreciation rate of 2–3%, a home purchased for $200,000 would appreciate $4,000–6,000 a year. Over 10 years, the appreciation would be between $43,799–68,783, increasing the home value to $243,799–268,783.
Related Articles
Want to read more articles related to home appreciation? Check out the following:
Selling a House After 1 Year or Less? You Need to Read This. Most home sellers know that selling your house after less than a year isn’t generally a good financial decision — but sometimes life gets in the way. Knowing whether your home has appreciated in value will help you figure out the financial ramifications.
How to Calculate the Fair Market Value of a Home. Learn the best ways to determine a home’s fair market value, and how it differs from an appraisal value or tax assessed value.
The Ultimate For Sale By Owner Toolkit: What You REALLY Need. A comparative market analysis (CMA) is one of the best tools to help determine an appropriate asking price for your home. The report can tell you how long comparable homes took to sell and if they sold above or below asking price.
21 Surprising Things That Affect Home Values. There are a number of factors that come into play to determine a home’s value. Some of these considerations are obvious. Here are some that may take you by surprise.
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