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People are staying in their homes much longer now, reversing the long-standing trend of homeowners selling their homes after the first few years to move on to a bigger dream home.
The national average first-quarter home occupancy was around eight years, down from just four years in 2006, according to data provided by ATTOM Data Solutions. In the West, where house prices exceed the rest of the country, people are hanging on to their homes about five years longer than they were in the mid-2000s.
âThe average time owners take to sell and move on to the next destination has doubled from the last real estate boom in the mid-2000s,â says Todd Teta, Director of Products and Technology at ATTOM Data Solutions .
New Jersey occupies the top three spots for counties with the oldest owners, with Hunterdon County leading the rankings with an average occupancy rate of 12.92 years in the first quarter of 2021. Passaic County Trail ( 11.87 years old) and Somerset County (11.79 years old) closely behind.
Additionally, California stands out as having more than half of the top 20 counties with the oldest owners, surpassing the national four-year average.
Californians survive homeownership nationwide
Interestingly, owners in Golden State tend to stay in their homes longer than the rest of the country – relatively small counties like Madera County near Yosemite National Park (the average tenure was 11.34 years). in the first quarter), to large counties such as Contra Costa County, which encompasses the East Bay region of San Francisco (11.09 years).
Across the country, California stands out for longer residents, in part due to strong demand and appreciation for housing. Californians who have been in their home long enough can enjoy property appreciation, but are less likely to jump into another home because they might not have as good a deal (or as much housing space) on. a more expensive market.
âCalifornia has historically achieved greater residential value gains than other states simply because it was a more attractive place to live (before the pandemic) and, therefore, higher aggregate demand,â says Rocky Foroutan, CEO of LenderHomePage, a digital mortgage platform headquartered in Santa Ana, California.
Where the rest of the nation stacks up
At the same time, some counties have seen significant spikes in the time homeowners choose to stay in their homes from year to year (YOY). Cherokee County, Georgia, just 40 miles north of Atlanta, saw a 103% increase in homeownership between the first quarter of 2020 and the first quarter of 2021.
Another Atlanta outpost, Newtown County, Ga., Came in second, with a 62% year-over-year jump in occupancy, with owners rising from 6.52 years on average in 2020 at 10.56 years in 2021.
The 5-year rule in real estate is changing
Real estate is one of those assets that typically gain in value over time (unlike cars or computers), so the longer you hold a property, the more money you have to make when you sell it, unless there is a “significant change in the market,” Teta says.
The length of your stay at home, however, depends on your particular situation. The old rule of thumb that you should stay in your home for at least five years is more of a vague directive than a formula, says Alec Hartman, co-founder and CEO of Welcome Homes, an online platform that helps buyers. to build a custom house. home in New York.
âEach house, property and area is very individualized. And its individuality is what drives up the price of a home in the long run, âsays Hartman. âAs we are still in the midst of a global pandemic, no expert can predict the long-term effects on house prices after the pandemic, with the changing influx of destinations. No one can accurately predict the impact of home prices on an individual consumer. “
Lindsay Barton Barrett, real estate broker at Douglas Elliman Real Estate in Manhattan, says the five-year rule is a way for real estate experts to communicate to their clients the reality of real estate appreciation, which often takes a long time. . commitment.
The idea is that after five years your home will have gained enough equity to recoup those high closing costs when you sell it. Closing costs, which include a large real estate commission, can eat up to 10% or more of the sale price. This means that in order for you to break even, your home must sell for 10% more than what you bought it for.
If you sell before the value exceeds the closing costs, you could end up spending more money to sell your home, which is not a position homeowners want to be. But if a local market is particularly hot (as we see in many parts of the country today), home values ââcan increase exponentially in a short period of time.
Another reason the five-year rule is violated could be related to capital gains tax rules, says Shashank Shekhar, CEO of Arcus Lending. This rule says that to avoid a capital gains tax of up to $ 500,000 (for married homeowners), homeowners would have to live in their home for two of the last five years.
âBut then the owners could just live in the house for the first two years and avoid paying capital gains taxes,â Shekhar says. “In that case, they don’t necessarily have to live at home for five years.”
Staying at home could cost you money
While real estate tends to be a safe bet, there are times when it can cost you money. For example, if your home is in a financial hole, it may need expensive repairs or maintenance. Also, taxes and Homeowners Association (HOA) fees could be outrageous, indicating that it may be time to sell. You don’t want to sacrifice your retirement savings or live on credit to float your housing costs.
For some people, staying in a certain area because of a house can mean sacrificing career opportunities or increasing wages. So there are certainly scenarios where holding onto a house can end up eating away at your existing or potential wealth.
In today’s seller’s market, keeping a home you no longer want could mean losing significant profits down the road if the market cools down before you sell.
âThe longer you stay, the more you have to worry about a house becoming too small for a growing family or too big for empty nesters,â Teta says. “For this latter group, staying could mean losing big profits during a market boom on the way to downsizing and banking the remaining profits.”
Tips if you decide to sell
Selling a house on a seller’s market may seem like a no-brainer: you have a product in high demand, so it may seem like all you have to do is list the house for sale, and you will have buyers making it. tail. with interesting offers.
Even so, you should be working with a seasoned real estate agent who can walk you through the deals. The last thing you want is to go through the sales moves only for the deal to fail due to adverse conditions, poor valuation, or some other reason.
For those who may have refinanced and leveraged their equity, they may be on the verge of having to pay those terrifically expensive closing costs. But there is a chance – especially in a strong seller’s market – that you can strike a favorable deal.
âNegotiating closing costs is not uncommon, especially (the) commissions of realtors,â Shekhar says. âIn a market where demand is greater than supply, the seller can even negotiate not to pay some of the fees that sellers normally have to pay.â
Some homeowners who want to increase their profits might decide to hang on to the house and rent it out. But experts are divided as to whether this is a good idea. While the consensus is that a strong rental portfolio can mean consistent and even significant income, owning a home is no small feat.
Experts point to the financial responsibilities and the emotional burden of maintaining rental properties as two essential factors that must be considered before becoming a homeowner.
âUnless a property management company is used, interrupted toilet calls (can) happen at any time of the night,â says Kris Lindahl, CEO of Kris Lindahl Real Estate in Minneapolis. âAdditionally, the mortgage has to be paid regardless of whether the rent is paid by your tenants or not, so owning a rent can lead to additional financial burdens.â