How to calculate home appreciation
There are many reasons to calculate home appreciation. Perhaps you’re looking to refinance and need to know how much equity you have. Perhaps you’re looking to buy in an area and want to know how much prices have increased lately. It’s good to know, if you’re buying a home, whether prices are going up or down.
In the news, there’s been a lot of talk about home prices going up steeply and now going down. In this article, I’m going to show you how to calculate home appreciation in your area.
How to analyze larger home price trends
There are a couple of data sources you can look at to see large home trends. Case-Shiller Home Price Index is perhaps the most well known. It gives you a look at how national home prices are trending.
But I prefer the Zillow Home Value Index, because it gives you a look at many different cities. You can see which cities are trending up or down, either with a year-over-year view, or month-over-month.
Zillow Home Value Index: areas where value has increased the most
Zillow Home Value Index: regions where home value has decreased the most
Important: home appreciation is hyperlocal
As you can see above, not every region is gaining or losing value at the same time to the same degree. So in order to really find out what home appreciation is doing in your corner of the world, more precise research must be done.
Not only do you want to be comparing the exact area, not just the city, that you’re in, you want to be comparing the exact type of property. That means, size, number of bedrooms, acreage, quality of construction and quality of finishes.
In the steps below, I will show you how to get very good data so that you can get a good estimate of how much a particular property might have appreciated or depreciated.
Steps to determine your property’s appreciation
Here are the steps you’ll want to take in order to calculate your home appreciation.
1. Identify properties very similar to yours that have sold in the last 6 months
Go to either Zillow or Redfin and search for home sales in the past 6 months.
This article has detailed instructions on how to search and sort for properties.
The reason why you want to use recent data is because home prices were on a different (steeper) upward trajectory prior to interest rate rises. So you’ll want to use the most recent, more relevant home sale data.
2. Triangulate between the homes and make value guesses about where your home falls based on unique details.
Look at the pictures for the properties and the floor plans and identify at least three properties that are similar to yours and note their sale prices.
You’ll want to look at the condition of the home, usable square feet, and determine where your home falls in relation to those homes.
For example, if you identify three similar homes, but one has a larger yard, one has nicer finishes, and one has an extra bedroom, guesstimate how your home compares in terms of value.
How much would it take to update your home to compare with the comparables? How much does a certain extra bit of acreage go for in your neighborhood?
3. Continue to watch the market
You can keep an eye on local sales to gain an ever better picture of your own home’s appreciation as more homes are sold.
There are many data sources available for national and regional home price appreciation and depreciation. But in order to accurately determine your home’s appreciation or depreciation, you’ll want to collect your own data on homes in your exact neighborhood. This is because real estate value is very hyperlocal – one neighborhood can become more desirable than another, even if they are near each other. Luckily, there are available resources to use to track home values near you.