Appreciation: How Much Property Values Actually Rise

Appreciation is the increase in a property's market value over time, usually quoted as a percentage per year. It is real, it is significant over a long hold, and it is a forecast rather than a fact, which is why it should never be what makes a deal work.

What the long run looks like

US house prices have risen roughly 3% to 4% a year on average over multi-decade periods, which is a little above general inflation. That average hides enormous variation:

• Supply-constrained coastal metros have run well above it for long stretches
• Many Midwest and Rust Belt cities have run below it, sometimes barely keeping pace with inflation
• Any given five-year window can be flat or negative anywhere

Why it's the most over-assumed figure

Appreciation compounds, so a small change in the assumption transforms the projected outcome. On a US$150,000 house over ten years:

Choosing 7% instead of 3% invents nearly US$94,000 of return out of an assumption. A pro forma that only works at 6%+ appreciation is not an analysis, it is a bet on the market.

The honest way to use it

Underwrite at 0% to 3%. If the deal works on cash flow and loan paydown alone, appreciation becomes upside you did not pay for. If the deal only works with appreciation, you are relying on something outside your control.

Note the tension with rent-to-price ratio: the markets with the strongest appreciation histories are generally the ones with the worst current income ratios, because buyers have already bid the price up in anticipation. You are usually choosing between cash flow now and growth later, not getting both.

Forced appreciation is different

Raising a property's value by renovating it is within your control in a way that market appreciation is not. That is the mechanism behind the BRRRR method, though it brings its own execution risk.

Related reading

Total return shows where appreciation sits among the four ways a rental pays you. Our markets pages show measured price and rent trends per city rather than a national assumption.