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Home Appreciation Vs. Inflation: What You Should Know

With rising prices continuing to affect the economy in the United States, it is very important to understand the impacts of both appreciation and inflation when you are investing in real estate because both can have significant impacts on real estate investments. If you are interested in investing in a property in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and want to know more about factors that impact the value of your home, Foundation Mortgage is here to help. Read on to learn about the differences between home appreciation and inflation and how they can impact your investment.

What Is Home Appreciation?

chi-m-R1uiDu8vBh0-unsplashHome appreciation essentially refers to the increase of value of your property over time. Home values have increased significantly over the past several years because of limited housing, growth of the economy, etc., however, this trend seems to be slowing down primarily because of a raise in interest rates. Homeowners that have had their home for a while will more than likely maintain their home appreciation, however future home appreciation may decrease. The real estate market can be difficult to predict, and in some cases, a home value may decrease, or depreciate, due to a number of reasons, including the amount of vacant homes in an area, an uptick in crime, unemployment, property tax hikes, etc. There are certain things you can do in order to increase your home’s appreciation, such as making home improvements and renovations. Although there are steps you can take to increase the value of your home, other aspects will be out of your control, like the state of the economy.

What Is Inflation?

Inflation is basically a continuous increase in prices of goods and services. Inflation is caused by money becoming devalued over a period of time. Inflation impacts real estate prices, rental costs, the stock market, and wages. In the real estate market, when the value of a property increases with inflation, rental rates for tenants can also rise over time, allowing investors of real estate to keep up with the rising costs caused by inflation, so purchasing real estate during a period of inflation still can be a good investment.

How Do Appreciation and Inflation Work Together?

There is a direct link between inflation and appreciation, and inflation is actually a very important factor that contributes to home values. When the value of your home goes up, it can sometimes be hard to determine if it is because of inflation or home appreciation. High mortgage rates tend to be associated with inflation, economic growth, and low unemployment. When inflation becomes too high, the Federal Reserve typically raises interest rates, so a stronger economy can lead to higher appreciation in home values.

If you want to learn more about inflation and home appreciation in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, contact Foundation Mortgage today for a consultation.

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