What is the average house appreciation rate?
When you buy a home, of course you want it to appreciate in value. But, how much can you actually expect your home to appreciate? It turns out, the average house appreciation rate is built on many factors. Let’s explore them.
Home appreciation depends on geographic location
It would be a mistake to think that homes appreciate at the same rate in Missoula, Montana as in Seattle, WA. Home price appreciation depends on the increase in demand over a period of time. If your area suddenly becomes more attractive, attracting more buyers, then expect to see values going up more steeply.
Homes appreciate differently not only on a local level, but a hyperlocal level. Meaning, one neighborhood in a city often will see steeper appreciation (or depreciation) than one right next to it, based on increasing desirability (e.g. an improving school system or proximity to public transportation).
Home appreciation depends on the economic cycle
If you take a look at the housing market over time, you see continuous ups and downs. Even if you buy in an area with historically high appreciation, and then there’s a recession driving prices down everywhere, you’re not going to get any benefit. Unless, of course, you ride the dip out out until prices turn around. That’s why homeowners who stay in their homes for longer periods of time tend to get more of an advantage from homeownership than some who buy only for a short time. Turns out, it’s very hard to time the bottom or top of a market :).
From S&P/Case-Shiller U.S. National Home Price Index
Big cities tend to show greater appreciation rates over time than small cities or rural areas
Think about Manhattan. It’s a desirable location in an area with a lot of jobs, and it’s also already built up, limiting future housing expansion. Now, think about a rural city with a lot of inexpensive land and available lots. You would expect there to be consistent price pressure in Manhattan, but harder to gauge in an area where more building can occur and less people are itching to move to.
That’s why big cities, like Los Angeles, Seattle, San Francisco and others see year over year appreciation rates in the high single or even double digits.
Some small cities appreciate as much or more than big ones!
But, don’t count small cities out. Take Bend, OR for example. In fact, there are many cities that appreciate more than their larger, seemingly more desirable neighbors. You can use this free tool from the Federal Housing Finance Agency, the Housing Price Calculator, to look at lots of cities of all sizes and get information on how much they have appreciated recently and even get a chart of it. Here’s one I did for Ames, IA:
Not all areas appreciate over time, some depreciate
There are many parts of the United States that have seen stagnant home prices over time or even decreasing home values, especially when you take into account inflation.
How to find average house appreciation rates for your area
With a little sleuthing, you can find out exactly what the home appreciation rates are in your neighborhood. See this article to learn how. You don’t need to rely on generalizations, since generalizing about appreciation is not helpful, given the reasons above. Here’s a tried and true method to determine the average house appreciation rate in any area.