When a home increases in value, the difference between the purchase price and the current value is called appreciation. For example, if you bought a home for $250,000 and sold it two years later for $325,000, the home appreciated $75,000.

Factors that boost a home’s appreciation include:

• The neighborhood has increased in value owing to local improvements or buyer demand for an area.
• There are now lower mortgage rates, which increases demand.
• You’ve made home improvements or added amenities, which can increase your home’s overall value.
• Home values have inflated owing to monetary policy or currency inflation.
• A strong local economy has created more demand for homes in the area.
• The area has outstanding schools, which increases demand for homes within its boundaries.
• Of course, there’s a flip side to appreciation as well. If a home loses value, it’s called negative appreciation. Conditions that may cause homes to lose value include:
• An increase in mortgage rates.

Credit becomes tighter, making it more difficult for buyers to get loans.

• A slowing local economy, which reduces the number of buyers able to afford a home.
• Environmental changes such as a new freeway on/off ramp, rezoning, commercial building, or other factors that lower buyers’ perceptions of the area.
• Overbuilding in the area, resulting in more homes for sale than the current market can absorb.

While there’s no such animal as a sure thing, the long-term trend, recorded over the last fifty years, has been for real estate to appreciate. Although local conditions can sometimes cause a dip in the real estate market, those conditions eventually improve and values resume their upward trend.

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