When thinking about real estate values over time, many people simply assume that it’s value depreciates. It makes sense when you think about it, as the more one uses the home and adds more wear and tear, the more the value will depreciate. However, this isn’t always the case. There are several things that could cause a home to appreciate in value, some of which may even allow you to sell your piece of real estate at a profit. Some of these things occur naturally without the homeowner doing anything, while others may require a little work and effort from the homeowner. So, if you were ever wondering “How can the value of my home appreciate?” here’s exactly how homes increase in value over the years.
One way that homes can improve in value over the years is through their limited supply. In economics, the law of demand states that as demand for something rises, so too does the price. When it comes to land, there is a fixed quantity. Theoretically, no one can create land, the amount of land will basically always stay the same. However, as the population continues to grow and more land is needed to support these people, the demand for land will rise. Since there is a fixed supply of land, the supply can’t be adjusted to accommodate these new people, meaning that the price must rise. This means that your land may appreciate in value simply because the population is increasing and more people need land for shelter, food, and survival. As demand for land increases, so too will the price and value of your land and the home that sits on it.
Renovations and Improvements
Another way that your home can appreciate in value over time is through renovations and improvements made to the home. Unlike natural appreciation of your home, this is something that you actually have to change about your home and will likely cost you quite a bit of money. Renovations and improvements are expensive, often costing several thousands of dollars. However, if you make major improvements to your home, it’s value could skyrocket. Common renovations that have major improvements on your home’s value include bathroom, kitchen, and living room renovations. Although you may have to spend some money to pull these renovations off, if done correctly, they can give you a great return on investment and improve the value of your home drastically.
This form of real estate appreciation is another form of appreciation that requires little to no input from the real estate owner as it usually just happens naturally. The location and surrounding areas of a home often have a major effect on the value of your home. If the economy of the area your home improves after you purchase the home, then chances are the value of your home will also increase. The value of your home is directly tied to the surrounding area, so as businesses expand and move into your local area, commerce will increase and the area will become more desirable to live in. This happens because people want to be closer to the products and services that they frequently use. This increase in desirability to live in your local area will be a great help to you, as it will increase the value of your land and your home.
The final way that your home will passively appreciate over time is through the fluctuations of mortgage rates throughout the country. When the interest rates on mortgages are high, demand for houses and land typically plummets. During this time people don’t want to purchase homes since mortgage rates are so high and will lead to massive mortgage payments in the future. As a result, the demand for housing and land will fall and will cause your home to lose some of its value. On the flip side, when mortgage rates are low people will be eager to purchase a home. This is the perfect time to get a mortgage and purchase a home, as you will be making smaller mortgage payments down the road. As the mortgage rates go down, demand for land and real estate goes up, thus improving the value of your home.