When you hear the phrase home price appreciation, what does it mean to you? Home prices are on an upswing and as a seller that's good news. But let’s look past the dollar signs and dive deeper into this concept - To truly understand why rising home prices matter we need to know how they work...
Rising property values is a topic of conversation in many homeowners associations these days; whether or not people want them for themselves, everyone wants their neighbors' homes to increase in value! For sellers wondering if now might be time to sell their own properties before too much long-term stagnation sets in (making improvements no longer worthwhile), understanding why those potential buyers will flock your way once word gets out about increased demand can help decide whether you want to sell or not.
Investopedia defines appreciation like this:
“Appreciation, in general terms, is an increase in the value of an asset over time. The increase can occur for a number of reasons, including increased demand or weakening supply, or as a result of changes in inflation or interest rates. This is the opposite of depreciation, which is a decrease in value over time.”
The real estate market is on a break-neck pace with little inventory to buy and many buyers trying their best to find the perfect home.
The current housing crisis has been caused by too much demand and not enough supply, causing prices of houses in desirable areas like San Francisco or New York City to skyrocket despite everything that has been going on in the past two years. The problem is that we're seeing more buyers rather than more homes available for sale which means competition will be fierce for those who are fortunate enough to locate a property they want from this limited pool of listings (see maps below).
What’s the ultimate indicator of a robust economy? One that has both buyers and sellers with money to spend. That's what happens every time there is more demand than supply, like right now in today's real estate market. Buyers are willing to pay much higher prices for scarce products or services because they want them so badly; this drives up demand even further which pushes down availability (and thus drives up price). For sellers, these rising prices mean opportunity knocks loudly at their door - it means someone will buy something from you!
No matter the industry -- whether we're talking about houses, cars, or furniture -- anytime there are more people demanding goods than those who have them on offer, then naturally prices go up as well because everyone wants what
Recent projections from Quicken Loans show that home prices are appreciating at an unprecedented rate this year. The average national appreciation is just 3-5% per year, but thanks to high demand and the strong economy, experts predict a 5-10% annual increase in housing values nationwide.
The real estate market has been booming lately with both new construction projects popping up all over the place as well as houses being snatched up faster than they can be listed on Zillow for sale! When you combine these factors with interest rates remaining relatively low (which means more people have access to mortgage loans) it's no wonder we're seeing such large gains across our country today - every month it seems like something else breaks records when it comes to how much people will pay for a home.
If you're looking to sell your house, this might be the time. The average forecast for appreciation is 11.5%, very close to a five-year high of 12% last seen in mid-2015, and much higher than historical rates, with an annual rate averaging 3%.
In summary, for sellers, this current market means even if you haven't put any money into renovating or making improvements to your home, it may still have more equity than before. Home equity has been boosted by increased prices thanks in large part to low inventory levels combined with competitive market conditions. Buyers are outbidding each other left and right so they don’t miss their chance at getting what could become increasingly scarce available housing stock. A simple visual for thinking about your home equity is included below.
Want to use that equity for a better home? Let's connect so you can get an expert market analysis of your house! Whether it needs a fixer-upper, or a newer home, the right buyer is on the way to make offers.
Interested in some of our other posts about real estate in San Francisco? Have a look!
- Public Transportation in San Francisco for South Beach Residents
- A Look at Housing Supply and What It Means for Sellers
- Being on the Fence about Buying a Home