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The galloping real estate market is a scary and exhilarating thing.
On the one hand, as home prices soar, how on earth will you ever buy one? On the other, assuming you do pull off the biggest purchase of your life and become a proud homeowner, those very same rising prices are a promise that one day you, too, will make bank.
And that’s exactly why savvy buyers and owners obsess about how much their home will be worth in a few years—and why.
Will a bigger or smaller abode appreciate most in a few years? Are those granite countertops and fancy-shmancy stainless steel appliances really worth splurging on? Or would it be better to add on a patio inspired by Architectural Digest spreads? And if you’re planning on selling, down the road, should you pay a premium to live near public transportation—or the top school districts?
Do you get better ROI on a ranch or a Victorian? Two bedrooms or four? Hot tubs or pools?
Yeah, it’s enough to make you reach for the anti-anxiety meds. The trick, of course, is to do everything you can to ensure that your home appreciates above market rate—or at very least retains its value. And that’s where we at realtor.com® come in.
If the economy is strong, a home’s value generally increases 3% to 4% every year, driven by inflation and natural population growth. From 2011 to 2016, the national housing market was recovering from the bubble at a slightly higher speed: 6.3% a year, on average.
To find out what will boost a home’s value the most, our data team took a deep dive into millions of listings on realtor.com from 2011 to 2016, and calculated the annual price growth rate of homes with particular features. Admittedly, it’s hard to separate one feature from a home and single it out as the reason for price appreciation. But when we crunched a lot of data and compared one feature with another, we found some useful—and sometimes surprising—patterns.
Ready? Stay calm, we’ve got you covered! Let’s get into the price appreciation game.
Small is so big right nowYou may dream of walk-in closets, a roomy master bedroom, and a three-car garage, but bigger isn’t always better. Turns out the smallest homes actually appreciate the fastest: Homes of less than 1,200 square feet have appreciated at 7.5% a year for the past five years. Meanwhile, homes larger than 2,400 square feet only inched up 3.8% a year.
The demand for smaller homes is driven by the two largest and most influential groups of buyers: millennials and baby boomers. Millennials are entering the market hungry for more affordable starter homes, and boomers are seeking to downsize.
This coincides with the trend bringing buyers back into city centers, where every extra inch is a luxury. Today’s young buyers are looking for more efficient spaces that are just large enough for their needs. Many would prefer to be close to work, cultural amenities, and fun bars and restaurants.
“[Millennials] believe that they live outside the home—that could mean a coffee shop, bar or restaurant, or a park,” says Jason Dorsey, chief strategy officer for the Center for Generational Kinetics, a marketing firm in Austin, TX.
Yet the supply of smaller homes is limited—housing developers still prefer to focus on the high-end market, so they can get more bang for their buck. Furthermore, those who own smaller abodes aren’t trading up quickly enough to meet market demand.
“Because the market [for smaller homes] is tighter, prices tend to increase more quickly,” says Jonathan Miller, president of the real estate appraisal firm Miller Samuel.
This effect is more pronounced in expensive urban markets like San Francisco and Denver, where homes of under 1,200 square feet see 17% and 12% price growth a year, respectively.
It’s not just square footage that drags down a home’s appreciation. Multiple bedrooms have fallen out of favor now that Americans are having fewer kids. So what would you do with those extra rooms, anyway?
Homes with five bedrooms appreciate at only 4.3% a year, far lower than the national average of 6.3%. Meanwhile, a cute two-bedroom home appreciates by 6.6%.
So converting a garage into a bedroom probably isn’t worthwhile, especially since this is one area where people do want a little more room. Two-car garages are still the gold standard, offering the highest annual growth, at 6.4%. It makes perfect sense, considering that an average American household in 2016 had 1.9 cars, according to Nielsen Pop-Facts® Demographics. A one-car garage comes in next, at 6%, while three-car garages—a luxury amenity—appreciate at just 3.8%.
It’s one thing to prefer a small home; it’s quite another to have a home that feels cramped. How do you make a small space look bigger? Knock down some walls and open it up! Homes with open floor plans appreciate 7.4% a year.
The great thing about an open plan is its flexibility. Party animals of all ages enjoy having a larger space for entertaining. Parents can safely watch their 3-year-old play while preparing a meal in the kitchen area. Older people who have mobility issues find it easier with fewer twisting corridors to navigate.
And to bridge the indoor and outdoor spaces, a patio is also a worthwhile investment. There’s nothing like putting in some serious summer relaxation time on your patio or deck—sipping a sweet Pappy Van Winkle Old-Fashioned, or firing up a grill for al fresco gatherings. Homes with a patio appreciate 6.8% a year.
Some HGTV bywords, like stainless steel appliances and granite countertops, have surprisingly little impact on price appreciation—3% and 2.5% respectively. However, homes with those amenities are relatively expensive to begin with, which leaves less room for growth.
As Miller, the appraiser, puts it, “Those are what I call ‘have-to-have’ features. A home needs to have them in a competitive market. But they don’t add long-term value.” What’s fashionable today doesn’t last forever, and “10 years from now, when you update your kitchen, they’ll be replaced.”
From elegant Queen Anne homes to humble cottages, architectural styles often reflect a buyer’s personal taste—and budget. We found that the styles resonating with the most people have higher potential for appreciation.
Homes in modern and contemporary styles are building a loyal fan base, especially among young buyers. They are known for their simple, geometric shapes, large windows that fill the space with natural light, and a harmonious blend of interior design with the surrounding landscape. Plus, more recently constructed modern homes tend to be more energy efficient. They appreciate at about 7.7% annually.
Modern architecture is to real estate as Apple products are to personal technology, says George Hale, owner of H. Hudson Homes, a builder based in Portland, OR.
“Not only does it look great, but it works well too,” he says. “High ceilings, big windows, lots of light, great space, thought behind design, these are the things that people appreciate today.”
“Traditional” generally refers to homes with classic designs like simple roof lines and symmetrical windows, along with a welcoming front porch, and often cozy fireplaces. The style enjoys wide popularity, especially in the South, because it’s homey, practical, and often affordable—its median price is $230,000. Homes of this kind appreciate at 5.6% a year.
Traditional-style homes
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Niche traditional styles, like Craftsman bungalows and Victorians, may tug at the heartstrings of history buffs, but tend to leave regular buyers unimpressed. The responsibility of maintaining a vintage abode can be huge—you can’t just wander into Home Depot and find customized doorknobs. And your favorite IKEA furniture will seem like a horrible mismatch.
The Craftsman style is defined by its low-pitched, gabled roofs, exposed wooden structural elements, and most importantly, hand-crafted woodwork. A Craftsman home isn’t cheap to come by—the median price is $336,500—and has not seen rapid growth recently, at only 3.7% a year.
Even worse, Victorian-style homes, famous for their elaborate decorative trim, came out dead last in annual appreciation rates, at a measly 2.2%.
The importance of location is a cliche in real estate—because it’s true. Homes located in the neighborhoods most in demand really do appreciate faster. After all, you can gut the inside and paint the outside, but it’s not so easy to move a nice-looking home out of an inconvenient location.
And the feature that buyers most want to be close to is public transportation. Homes near train stations and bus stops appreciate 8.4% every year. They’re usually located in more urban areas and are close to restaurants and shopping too.
Homes within 10 blocks of a subway station sell the fastest in Astoria, in the Queens borough of New York City, says real estate broker Paul Halvatzis of Amorelli Realty in Astoria.
“Buyers want to roll out of bed, walk to the train station, and hop on a train to work within half an hour,” he says.
Homes near schools, especially schools with keywords like “top” and “best,” also come with an inflated price tag—the median price is $320,000. That’s almost one-third more than the typical home. But plenty of parents still envision walking to school with their children in the morning. Homes near the most desirable schools appreciate 7.2% a year.
Whether it’s snowy mountain peaks or a glassy expanse of blue water, you’ll pay a premium for those stunning views outside your windows. But some sights bring more value to your home than others.
The most valuable? Homes with a park view appreciated 7.9% a year.
“[They] hold value over a longer period of time, and they recover quickly from a downturn,” says San Francisco Realtor Michael Minson at Kelly Williams, who recently sold a home near Golden Gate Park. “Buyers appreciate the tranquility and outdoor activities. They like being close to nature.”
On the other hand, homes with ocean views see little appreciation over time, at just 3.6% a year. That may be because as much as buyers fancy white sand and crashing waves, few have deep enough pockets to pay $699,000 for a home. Recent storms may have scared them off, as well.
The post Appreciation Sensation: The Real Factors That Boost Your Home’s Bottom Line appeared first on Real Estate News & Advice | realtor.com®.
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