When you buy a home, one thing that you expect is that the value of your home will rise over the years. This is what’s known as “home appreciation” – your home appreciates in value, year after year, because prices almost always tend to rise. No matter where you live, a home bought in 1980 will mostly likely be worth more in 2009. Understanding home appreciation entails more than that fundamental concept, however.
When you buy a home, you’re seeing it as an investment. Investments by definition are something that requires money and then generates more money, beyond what you put into it. It’s all about the increase in value of the asset in question. Home ownership as an investment is a fundamental part of the American Dream, and for many people, their home is much more than shelter – it’s their nest egg, their future, their retirement fund, their protection against times of trouble. This is because homes appreciate in value as time goes by. If you paid $250,000 for your home in 1980, chances are it’s going to be worth much, much more than that in 2009. Location plays a big role in how much a home appreciates – if your home is in Beverly Hills it’s going to be a very different market from that in Danville, Virginia. Market demand is something home owners pay a lot of attention to.
More specifically, home appreciation is a question in the rise of your home equity. Equity means the profit you’ve made on the home (in the form of the increase in its value). Home prices can depreciate, of course, if the real estate market collapses, or if interest rates or inflation really spike.
For more information on home appreciation, speak with your financial adviser or a real estate industry professional you trust.