The experts are saying that home values will continue to rise for the foreseeable future. In real estate, we refer to this concept as “appreciation.” While home appreciation is wonderful news for current homeowners (increasing equity!), for those looking for a home to purchase in the near future, it means that waiting any longer to buy may actually cost you more in the end. In this blog, we wanted to take a deep dive into the concept of home “appreciation” and discuss how increasing home values may impact your wallet if you put off buying a home any longer.
What is appreciation?
In real estate terms, appreciation is the increase in value of a home over time. When you sell your home, how much it has appreciated becomes your net profit. Home values tend appreciate in value approximately 3-4% per year. However, in today’s hot market, annual home sales are increasing from 5 to more than 10 percent per year! This is why real estate is generally considered one of the best investments you can make. The longer you stay in a home, the more your property appreciates, resulting in more money in your pocket when you decide to sell!
While appreciation is great for current homeowners, it also means that prospective new homeowners looking to buy will face increasing costs the longer you wait. Check out what we mean by this below, using an example calculated with this Appreciation Calculator.
Example situation of appreciation
A lender has approved for you to buy a home for $500,000, but you are in no particular rush to make a purchase. If homes in your area are appreciating at 10% per year, which is the expectation for home sales in 2021, that increases the home’s value to $550,000 in one year’s time. In essence, this means that by delaying a year, you would have to pay an extra $50,000 on the same home.
Current home = $500,000
Future growth = 10%
One year growth increase = 500,000 x 0.1 = $50,000
Future cost = 500,000 + 50,000 = $550,000
Based on budget and the loan amount that you are approved for, waiting to buy may mean that you cannot afford the home of your dreams and will have to settle for something less. So why wait to purchase a home? Many financial analysts are stating that they don’t see housing prices falling anytime soon due to the strong demand.
Finding out a home’s value in your area
If you are looking into buying a home, now may be the best time to buy because the longer you wait, the more you will eventually have to pay. You will also be missing out on some amazing gains in equity. Factoring in real estate appreciation may help with making a decision on when to buy, but it shouldn’t be the sole factor. If you think you are ready to pull the trigger on a new home purchase, contact a trusted and knowledgeable Wisdom Real Estate Agent today. We will always educate you so that you can make the best choices and investments for your future.