By Bill Lyons | Updated on January 29, 2025
TABLE OF CONTENTS

    When considering homeownership, many people think beyond the immediate shelter and security of a home and lean into its potential as an investment vehicle. Over the years, real estate has proven to be a cornerstone of many wealth-building strategies and a tangible asset that carries emotional and practical value.

    The dynamics of the housing market, influenced by various factors, play a role in the financial trajectory of homeowners. One of the most intriguing aspects of this dynamic is the concept of home appreciation. When your home appreciates, it becomes more valuable, which means you stand to gain more if you decide to sell.

    So how much do houses actually appreciate per year? We go over average home appreciation per year and the factors that impact real estate appreciation in this post.

    KEY TAKEAWAYS

    • Real estate appreciation refers to the rise in a property’s value over time.
    • Several factors can drive appreciation, including interest rates, home renovations, and economic growth. Conversely, an oversupply of property or periods of economic downturn can lead to depreciation. 
    • As a property’s value grows, homeowners can benefit from increased equity, providing opportunities to access cash via home equity loans and cash-out refinancing.

    What Is Real Estate Appreciation?

    In real estate, appreciation is the increase in the value of a property over time. It indicates the potential of a property to fetch a higher price if placed on the market, allowing homeowners and investors alike to realize a profit upon its sale.

    Appreciation values reflect the classic economic principles of supply and demand. Prices are likely to rise when demand for properties in an area exceeds the available supply. Conversely, if there’s an oversupply of properties with limited demand, appreciation might be minimal or even negative, leading to depreciation.

    Why Real Estate Appreciation Is Important

    Real estate appreciation affects the homeowner’s personal wealth and overall security. As a property’s value increases over time, so does the equity that the homeowner has in the property. This growth in equity can significantly contribute to an individual’s overall financial assets.

    Unfortunately, this equity isn’t liquid, meaning it can’t be easily converted to cash without a sale. Luckily, there are many ways to tap into this equity without selling your home, such as home equity loans, home equity lines of credit (HELOC), and refinancing your mortgage.

    Appreciation also provides homeowners flexibility in terms of when to sell. Homeowners can strategize the best time to sell to maximize returns by understanding market trends and the potential for further appreciation.

    Keep in mind that many homeowners don’t purchase a property intending to sell it as quickly as an investor might. For many, a home is part of their retirement strategy with the hope that by the time they’re ready to downsize or move, the property will have appreciated enough to offer them added financial security when they’re no longer working.

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    What Causes Homes to Appreciate in Value?

    Much like other investments, homes can appreciate or depreciate based on various factors. The appreciation of real estate is often driven by supply and demand along with other influential elements, such as:

    • Economic growth: An area experiencing economic growth typically sees an increase in job opportunities and overall prosperity, which can lead to an increased demand for housing in the area, driving property values up.
    • Low interest rates: Lower interest rates can make home loans more affordable. This increases the number of potential buyers, driving up demand and property values.
    • Upgrades and renovations: Well-executed home improvements and renovations can increase a property’s market value, especially if they appeal to current housing trends.
    • Local amenities and attractions: Proximity to amenities like parks, restaurants, and other attractions can make a neighborhood more appealing, leading to higher home values.
    • Government policies and tax incentives: Policies promoting homeownership, tax breaks for investments, or incentives for first-time home buyers can stimulate demand, leading to appreciation.

    Home Appreciation vs. Depreciation

    While home appreciation refers to the increase in the value of a property over time, depreciation is the exact opposite. Home depreciation is the decrease in the value of a property over time. The same factors influence appreciation and influence depreciation. For instance, if the economy is experiencing a downturn, employment opportunities may decrease, and fewer people might be able to afford homes, leading to decreased demand and falling property values.

    Additionally, too many homes built without corresponding demand can lead to a surplus in supply, driving property prices down.

    Appreciation and depreciation are reflections of the health of the real estate market and economy. Both can have significant implications for homeowners’ equity, the ability to sell or refinance, and overall wealth.

    Price depreciation should not be confused with depreciation of rental property for tax purposes.

    What Is the Average Home Appreciation Per Year?

    So how much do homes appreciate per year on average? The value of homes fluctuates based on various factors. Analysts often look at the average rate of home appreciation per year to gauge the health and trends of the housing market. According to a release from the Federal Housing Finance Agency (FHFA) in December 2024, house prices experienced an appreciation of 4.5% year-over-year as of October 2024. Additionally, a CoreLogic report predicts a 2.4% increase in home prices between October 2024 and October 2025, indicating the likelihood of positive appreciation in the future, albeit at a slower pace compared to recent years.

    While a 4.5% appreciation might seem favorable, it’s essential to put this number into context. Over the past few years, the housing market saw substantial increases in appreciation rates, with some years witnessing double-digit growth. The recent data indicates a noticeable slowdown in home appreciation.

    However, historically, residential real estate in the United States has shown a long-term average appreciation rate of approximately 4.27% per year, based on data spanning from 1967 to 2024. This means that while annual appreciation rates may vary significantly due to economic conditions, housing typically follows an upward trajectory over time.

    For example, a home purchased for $100,000 in 1967 would equate to a value of roughly $1,085,469 in 2024, adjusted for inflation. This historical perspective highlights the enduring value of real estate as a long-term investment, even as short-term trends fluctuate. In other words, real estate is a long game for wealth building.

    It’s crucial to note that one of the most influential factors affecting housing demand is interest rates. Higher interest rates result in more expensive mortgage loans, reducing the number of potential buyers in the market. This slows down the pace of home price appreciation as demand diminishes.

    How to Calculate Home Appreciation

    A cutout of a home lays on a dark table with cash, a calculator, a marker, and a note that says “What’s your home worth?”

    Home appreciation is a key indicator of how well a real estate investment is performing. Whether you’re a homeowner curious about the increased value of your property or an investor looking to understand returns, calculating home appreciation is a straightforward process. Here’s how you can do it:

    1. Determine the original price and current price of the property: The original price is the amount you initially paid for the property. The current price is the property’s present value, based on a recent appraisal or comparable sales in the area.
    2. Use the home appreciation formula: The home appreciation formula is Appreciation rate = [(Current price – Original price) / Original price] x 100.
    3. See results: The final number is the percentage of home appreciation.

    Let’s take a look at an example to help you get a better idea of how the formula works. Suppose you purchased a home for $200,000 five years ago. Today, the home is valued at $230,000. All you need to do is use the formula:

    [(Current price – Original price) / Original price] x 100.

    [(230,000 – 200,000) / 200,000] x 100 = 15%.

    So, based on this calculation, your home has appreciated in value by 15% over the past five years.

    In real estate, one must also weigh the cost of waiting. If you bought a home today for $500,000 and it appreciated 5% in one year, then you’d gain an additional $25,000 in equity.

    As a homeowner, it’s a good idea to keep your eye on the real estate market and see how home values—especially those in your area—are trending. This can provide you with a better idea of what your home equity is worth, which in turn helps you get a better picture of your overall financial wellness. Luckily, tracking home values is easy when you use the Griffin Gold app. Griffin Funding’s all-in-one financial management app is a must-have for both homeowners and potential home buyers who want to effectively budget, monitor their credit, track real estate market trends, and more.

    How to Enhance the Value of Your Home

    Increasing the value of your home can help you make the most of your investment. Some steps homeowners can take to increase their average home appreciation per year are:

    • Upgrades and renovations: Upgrades and renovations modernize outdated elements of your home to improve functionality and increase the property’s aesthetic appeal. By investing in strategic improvements, homeowners can meet or exceed market standards, making their property more attractive to potential buyers.
    • Maintenance and repairs: Beyond major upgrades, regular maintenance is crucial. Ensuring all systems and appliances are in good working order, fixing structural issues, and addressing minor repairs can prevent potential deal-breakers during a sale.
    • Energy-efficient upgrades: Many buyers are looking for homes with energy-efficient features. Things like installing energy-efficient windows, adding insulation, or upgrading to a smart thermostat can be attractive selling points.

    The Right Mortgage Can Help You Benefit the Most From Real Estate Appreciation

    Securing a favorable mortgage—whether it’s a conventional loan, VA loan, or non-QM loan—is a strategic move that can help you get more out of your real estate investment. A low interest rate on your mortgage reduces your monthly payments and can save you thousands of dollars over the life of your loan. Lower interest payments mean more money goes towards the principal amount, allowing you to build equity faster. As your home appreciates, this equity grows in value.

    Beyond the initial purchase, homeowners should always be focused on financial strategies to leverage their growing equity. As appreciation increases a home’s value, homeowners might consider cash-out refinancing or a home equity loan to draw out a portion of their home’s equity and cash that can be invested into the property or used for anything from medical bills to consolidating debt.

    Griffin Funding is a premier mortgage lender dedicated to helping you get the most out of your mortgage and real estate investment. By offering expert advice, competitive interest rates, and a range of financial solutions, Griffin Funding ensures homeowners set themselves up to maximize the benefits of homeownership. Reach out to our team today to get started on your home buying journey.

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    Frequently Asked Questions

    Do manufactured homes appreciate in value?

    Whether or not a manufactured home appreciates in value depends on a number of factors. One of the primary considerations in determining if a manufactured home will increase in value is whether or not you own the land the home sits on. It’s typically much easier to sell both the home and the property together rather than a manufactured home in a park where the owner has to pay rent. 

    Of course, other factors contribute to the appreciation or depreciation of manufactured homes as well. The quality of the building materials, the condition of the home, its location, and economic conditions will all play a role in the appreciation rate of the manufactured home. 

    Is real estate a better investment than stocks?

    It’s difficult to say whether it’s better to invest in real estate or stocks because in both cases the money earned – or lost — will depend largely on your particular investment strategy. However, both investment methods have their strengths and weaknesses. 

    While investing in real estate tends to come with a high upfront cost, it tends to be a more stable investment than stocks, can serve as a hedge against inflation, and offers potential tax benefits. On the other hand, stocks have the advantage when it comes to liquidity and the ability to diversify. 

    Do new homes appreciate faster than older homes?

    How much a home appreciates per year typically depends less on when it was built and more on other factors, such as:

    • The quality and condition of the home
    • The location it’s situated in
    • Current economic conditions 

    With that being said, new homes often come with features that can be valuable to buyers. For example, new homes often have modern appliances, energy efficient features, and less maintenance costs to worry about. These features can be extremely desirable in the right market. 

    Keep in mind, though, that older homes have advantages as well. Many people prefer the architectural style, building materials, and charm associated with older homes. Additionally, in many cities, older homes are located on big lots near city centers and in desirable neighborhoods. 

    Bill Lyons

    Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.