What is home appreciation in real estate?

Home price appreciation has been relatively easy to achieve with the astronomical gains of the housing market over the last several years. But, while prices are still high, an evolving interest-rate environment can mean things change quickly. Learning how home appreciation works — and how to make it work for you — can help you weather any type of market conditions.

What is home appreciation?

Real estate appreciation is the increase of your home’s value over time. The inverse would be real estate depreciation, which is the decrease of your home’s value over time.

Home values have soared in recent years: The median price of an existing home (not new construction) hit an all-time high of $426,900 in June 2024, according to data from the National Association of Realtors. Those who have been in their homes for a while will likely retain the appreciation they’ve benefited from over the last several years, but future appreciation may be slower or harder to come by.

How to calculate home appreciation

Calculating appreciation is simple. Take the current value of your home and subtract the price you paid when you purchased it. If you’re not sure of the purchase price anymore, you may be able to see the sale amount on a website like Redfin or Zillow. Once you have the difference between the price you paid and your current fair market value, divide that number by the purchase price.

For example, say you purchased a home five years ago for $300,000. If that home were now valued at $425,000, that would represent an appreciation rate of 41.6 percent. ($425,000 minus $300,000 equals $125,000; and $125,000 divided by $300,000 equals 0.416.) An online percentage change calculator can help you run the numbers.

What’s the average home appreciation rate?

The national housing market has seen positive annual appreciation every quarter since the beginning of 2012, according to a recent report by the Federal Housing Finance Agency. Of course, most homeowners won’t experience the significant increase in value of our hypothetical example above. According to the FHFA report, prices rose 5.7 percent between the second quarter of 2023 and the second quarter of 2024, and 0.9 percent between Q1 and Q2 of 2024.

However, the average rate of home appreciation can vary greatly by location, and a lot depends on your local market conditions. For instance, between Q2 2023 and Q2 2024, Syracuse, New York saw an annual price increase of 14.2 percent, while the Austin, Texas area saw a decline of 3.2 percent.

Ways to add value to your home

While homes do tend to appreciate over time, you don’t have to just sit back and passively hope for your home’s value to increase. You can actively help things along by undertaking home-improvement projects that add value.

Projects that can increase your potential sale price, thus maximizing your home’s appreciation, can include things like updating and modernizing the decor, installing energy-efficient appliances and upgrades, refreshing the landscaping or increasing the usable square footage.

Big, expensive projects rarely provide a 100 percent return on investment — but that’s not necessarily a reason to avoid them. The National Association of Realtors’ most recent Remodeling Impact Report also accounts for what it calls a “joy” score, accounting for the happiness homeowners reported with their renovations while still living there. If you’re looking for a more enjoyable house now with a greater resale value later, here are a few projects worth focusing on:

• Refinishing hardwood floors wins it all with a huge estimated cost recovery rate of 147 percent, and a perfect joy score of 10 (out of 10).
• Converting an attic into living space has an estimated cost recovery rate of 75 percent, with a joy score of 10.
• A complete kitchen renovation also has an estimated cost recovery rate of 75 percent and a joy score of 9.8.

Bottom line

Home price appreciation is the increase in your home’s value over time. With the extremely hot housing market of the last several years, appreciation rates have been extremely high. It’s also possible to increase your home’s value by making improvements that can help you fetch a better price when you’re ready to sell.