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Home depreciation is a general decrease in the value of a home in comparison to what the home was valued at previously. This is usually viewed not only in terms of the value of a home when compared from one year to the next, but is also considered with relation to the value of a home when it was purchased. “Depreciation” in financial terms usually refers to a decrease in value, while “appreciation” is the term used for an increase in value. Home depreciation can be caused by a number of different factors, including the condition of the home, the neighborhood around the home, and the current housing market.
There are typically two primary ways in which home depreciation is viewed: with regard to a previous year or years and in comparison to when the home was purchased. For someone who wishes to sell a home, the comparison with previous years may be more important since this indicates a loss of value due to a home not being sold earlier. Someone still living in a home might compare the change in value with when he or she purchased the home, and this would indicate how matters have changed since the purchase was made. This analysis of home depreciation can also be important for a homeowner in the US who is able to use depreciation as a tax deduction.
Home depreciation can be caused by a wide range of factors, and to fully understand why a home has depreciated, these factors must often be considered together. The condition of a home is one of the major elements when considering the value of a home. If a home was purchased new and has received little repair work over a decade, despite requiring such work, then this will typically depreciate the value of a home. Most people considering the purchase of a home see any costs for repairs as a deduction from what a home might have otherwise been worth.
The neighborhood around a house can also cause home depreciation. This can typically happen if crime rates rise in a certain area over a period of time, or if surrounding homes in a neighborhood are sold for less money. Home depreciation is also typically affected by the housing market itself at any given time. A home purchased during a housing boom or bubble may have been bought for more than its actual value, and a sudden burst in the market could then depreciate that home below the actual value, creating a large swing in the home’s apparent value.