What is Appreciation?

When real estate investors talk about appreciation they are talking about the tendency for real estate to go up in value over time.

Real estate prices can rise and fall over time, but real estate investors often believe that over long periods of time real estate tends to increase in value.

There are definitely real estate markets where prices have not gone up. In fact, there are real estate markets that have gone down over time.

However, if you look at charts of the United States national real estate prices over long periods of time, the trend before the dip in prices in 2008 has been an annual rate of increase of between 6 and 7% per year.

There are many factors that can cause real estate prices to rise over time including supply and demand. House prices tend to rise as the demand for those houses is strong. House prices tend to drop as the demand for those houses is weak.

Inflation, or the overall value of a dollar, can cause prices to go up. If a dollar, over a period of time, is worth half as much then the price of housing will tend to be about twice as much.

Often related to inflation is the cost to rebuild the same property. The cost to build a property can affect its value.

Interest rates can affect whether real estate prices appreciate or decline.

Until my next post,

James