Home appreciation is the speculative part of home ownership. You cannot count on it; you can plan for a reasonable range. The Case-Shiller index averaged 3.5% nominal (about 1% real, after inflation) over the last 130 years. The last 10 years were well above average; the next 10 will probably be closer to trend.
Worked example: $425,000 home today, 10-year horizon. Bear case (1.5%/yr): $493,000. Base case (3.5%/yr): $600,000. Bull case (5.5%/yr): $726,000. That spread — $233,000 — is the size of the bet you are making on your specific market.
Appreciation by market type
- Supply-constrained coastal metros (SF, NYC, Boston, LA, Seattle): 4-6% long-run. Higher volatility.
- Growing Sunbelt metros (Nashville, Charlotte, Raleigh, Phoenix, Austin): 3.5-5%. Population tailwind.
- Stable Midwest (Minneapolis, Columbus, Kansas City): 2.5-3.5%. Lower volatility.
- Declining metros (some Rust Belt, rural areas with population loss): 0-2%. Can go negative for extended periods.
Why you should underwrite to bear case
If your financial plan only works with 4%+ appreciation, you do not have a plan — you have a bet. A home purchase that does not pencil at 1.5% appreciation is too risky. A home that pencils at bear case and wins in base case is a smart buy.