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Home Appreciation As a general rule, homes appreciate about four or five percent a year. Some years of course will be more and some less. The figure will vary from neighborhood to neighborhood, and from city to city.
Five percent
doesn't really seem like that much at first. You could earn the same return with a very safe investment in treasury bills or bonds.
But take a second look…
If you bought a home that costs around $200,000 and put down 20% that would mean your initial investment would be $40,000.
At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual "return on investment" (ROI) would be a whopping twenty-five percent.
And because the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your home purchase.
Your rate of return when buying a home is higher than most any other investment you could make.
Real estate appreciation refers to an increase in value of your home and the property. When your property "appreciates" you have greater equity against which to borrow, and you realize a greater profit when you sell. the economy is the driving factor of real estate appreciation in the U.S. That includes interest rates as well as the current employment rate, business growth in the area, housing supply and demand and affordability. Many people new to the housing market have become so accustomed to home appreciation that they forget that there is never any guarantee of housing appreciation. It is controlled by market forces and subject to twists and turns in the market like any other commodity. However, when you look at the past 20 years or so, especially in areas such as California, the housing market has outperformed just about any other investment vehicle. Making sure that you have the right mortgage product in the right Real Estate environment is part of your mortgage brokers job. The time you plan on spending in the particular home will be a major factor in determining if the appreciation, will net you the profit, you feel is necessary for your investment. Typically, the longer you own the home, the more it will appreciate. Home appreciation is more prevalent in certain areas of the country. Appreciation should be taken into account when determining the type of mortgage an applicant should apply for. Applicants should discuss his with their real estate agent and a mortgage professional before purchasing a home. Real Estate appreciation has statistically been the most consistent investment over the past two decades. Some loan programs, such as the option ARM loan, have a "negative amortization" feature. What this means is that you are paying an amount on your mortgage that is less than the interest you owe for the month. When this happens, the unpaid interest for the month is added to your total loan amount.
This can be a dangerous thing for many people, because they can actually lose equity on their home, even though their home is still appreciating. When you sell your home, you can actually end up still owing money on the loan.
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Information listed above is to be used for educational purposes only and is not guaranteed
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