How does home value increase? If you’re asking whether your property or home will appreciate, then you’re more likely than not one of the homeowners considering reselling it in the near future. There is no doubt that everyone wants a higher return on investment from his or her home because it is single most expensive purchase.
So when buying a home, it is natural you’re hoping it would worth more than you have paid for it when ready to sell.
First, let’s talk about what increases your property’s market value. Remember, real estate growth varies per given factors. You’ll get good returns if the factors involved are on your side.
What causes appreciation?
Appreciation defines the increase in the property’s value based on the factors affecting its rate. A few known factors include household finances, economic trends and consumer confidence.
When there are a huge number of consumers, the property’s value increases. What happens is that a huge demand for properties increases as the population grows.
When there’s excessive money in circulation, there is inflation that causes the value of money to drop. It also leads to an increase in the prices of construction materials, land prices, building permits, labor and so on. Also at the time of inflation, homebuyers/investors can ensure of getting good ROIs.
[Briefly, Investopedia says that inflation is a sustained increase in the good and services’ prices in a county.]
In economics, price appreciation, demand and inflation play each of their roles regarding the property’s price appreciation.
The prices tend to go up when there’s huge demand for homes in geographical a location or area. Another that leads to higher prices in a location is when the demand increases and when the supply drops.
This is the perfect time for the investors to sell what they bought for a profit when supply is low.
Without even saying, property demand and inflation play a crucial role in determining appreciation.
It is another factor affecting property appreciation, and a few things associated to it include population growth and infrastructure development.
For example, housing units, such as condominiums to find in an ideal location might have higher prices.
[If you’re looking to buy a home in a strategic location, consider Ocean City Communities. These communities are great investments because they’re in busy tourism hub, for instance. They’re also in demand; thus, their value can appreciate over time.]
Demand and supply
Human behavior influences these economic conditions. When the supply goes down but the demand for properties in a specific area increases, the prices go up.
It sometimes happens when the consumers are willing to pay more because of the great infrastructure/location of the property.
This event brings in the investors who are selling their properties at a profitable price when the supply isn’t enough. It also brings up the prices of the properties in the location.
Another growth driver in real estate include physical and social infrastructure. For example, any changes in the infrastructure in/around a home or property can improve its livability quotient.
A few area developments improving it are shopping malls, hospitals and schools. In addition, they include the projects interlinking localities to the areas in the neighborhood.
The higher will be the value for better infrastructure.
The land your property is sitting is crucial when it comes to its appreciation. By understanding future prospects and location, buyers/investors can make better decisions among competing assets.
Land is an appreciating asset because its supply is limited.
Its demand is always increasing but its supply is finite. Without even saying, its price will appreciate over time.
The locations within the neighborhoods are also going to affect land values.
For example, those tucked in a safe neighborhood have higher demand than those homes in much used roadways.
How much improvements will degrade/improve overall value of a property and how much land will appreciate?
Take note that the actual structure or building is a depreciating asset. It also requires updating and maintenance. Sometimes, owners also have to update in order to prevent their properties from looking outdated.
Development plans on hospitals, schools, public infrastructure as well traffic patterns have a significant influence on the value of land as well.
However, you might be asking, “Will a falling down home appreciate too?” Yes, it can if it is in a desirable location or neighborhood. Potential buyers might not take into consideration the house itself.
Tip: If you’re aware that real estate market is getting hotter, you might want to make the upgrades to find buyers and make a high return on investment.
Now that you know the factors affecting the appreciation of a property, you will better equip yourself with knowledge on what to expect when buying a new home or selling an existing one. For more help, contact me today!
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