The Real Data on Selling Your Home And Making Money

Homeownership has long been touted in America as a way to accumulate wealth. 

We set out to answer the question: is owning a home always a guarantee to help you build wealth or, even better, turn a short-term profit? 

We analyzed data points including historical rates of inflation, appreciation, and length of homeownership. 

In this post I’m going to share what we discovered. 

Let’s dive in. 

Summary of our most interesting findings: 

1. Historically, home value appreciation and inflation track along similar rates. 
2. Families are living in homes around 8 years, and this isn’t enough time to turn a profit when selling.
3. The average family that lives in a home for 30 years might not lose money, but it’s still not a profitable investment. 
4. Selling fees can be between 6-10% of a homes’ value. Reduced selling fees can help Americans net greater profit on their home sale and should be considered. 
5. Investing in the stock market (or similar investment) can produce greater wealth than the act of paying off a home over a period of 8 years, on average. 
6. You can use this calculator to figure out your own return on your home, and verify whether or not it’s actually been a profitable investment.

I’ll buy a house, sell it in about 8 years, and make a profit, right?

Both building wealth and making a profit off a home sale is purely dependent on that home appreciating in value. More specifically, Appreciation + Time. There are many factors that play into home appreciation, and rates can vary widely at a neighborhood, city, and state level. 

Before buying a home, it’s a good idea to look at historical appreciation values for that specific neighborhood to get an idea of what to expect. 

Appreciation 

As with anything, there are periods of appreciation spikes and declines throughout history. We saw evidence of this across the US with the recent Covid-driven home appreciation rate hike at an average of 13.2%.  

Under more typical circumstances, home appreciation actually very closely follows inflation rates.  Typical national appreciation values average between 3.5% and 3.8% per year when looking at historical trends.

Appreciation and inflation rates typically closely follow one another, especially when looking at high level historical trends, as seen in the graph below dating back to 1891.

Time

The simple act of selling a home can cost as much as 10% of the value. If you’re losing 10% of your home sale every 8 years, this can really start to add up to a lot of money lost over the long run.

As a rule of thumb, as long as your home is actually appreciating in value, it may pay off to live there longer. However, as of late 2020, families are living in homes an average of 8 years. 

Let’s look at a real-life example of what will happen if we buy and sell a home after 8 years. This example is taking average buying and selling costs.

The current typical home value in America is $308,220 as of October, 2021.  For our example, we’ll start with a flat purchase price of $300,000 to keep things simple.

This causes us to ask the question: isn’t an investment supposed to be making me money? And growing in value?   

It actually cost you $9,472 + taxes, repairs and upkeep to live in the house over that period of 8 years.

Granted, we know buying a house is more than just dollars and cents. It’s making memories, it’s creating a home for you and your family. But let’s acknowledge it for what it is – having a place to call home, but the numbers just aren’t adding up when we consider it an ‘investment’. 

Since we are discussing the theme of Appreciation + Time, let’s look at another example. This time, let’s compare 16 years VS 30 years.

Will living in a home longer help us gain a short-term profit once sold? 

Inflation

While inflation may change very little or a lot over 8 years, inflation longterm from 1914-2021 has averaged 3.24%.

source: tradingeconomics.com

Over a 30 year span, does the original $300,000 have the same buying power?

The answer is no.

30 years into the future, in 2051, you would need $780,838 to buy a home of equal value to your original $300,000. 

Building Wealth VS Making a Short Term Profit 

There’s a subtle but important difference between “building wealth” and “making a profit”.

Assuming you are paying your monthly mortgage on your home and aren’t ‘upside down’ in it- the more accurate way to look at home ownership is that you’re building up that money in an  account that is equal to the value of the home.

This is why many have stressed the value in owning over renting. You are working toward owning something and “building that wealth”. In fact, the majority of Americans have most of their wealth wrapped up in their home. 

When you sell your home, the more accurate way to view home ownership is that you’re getting your money back that you’ve allowed a lender to hold for you. Keep in mind, they are making money off of your money, too. Depending on the total appreciation of your home vs costs spent, you may or may not have actually made a profit. 

Either way, if it’s the last home you own in your lifetime, then either you or your heirs will receive the value of the home sale. It’s possible you will never see the wealth, but generations after you will. It’s a long term play. 

Is living in a home for 16 years realistic in today’s world?

Homeownership wasn’t always part of the American reality. In fact, prior to 1940, most owned homes and land was by farming families. Between 1940 and 1960, thanks to government policies such as the GI Bill of Rights, homeownership steeply increased from 44% to 62%.

Large scale subdivisions became a popular and attractive place to grow families. This is also the era that homeownership began to be marketed as a way to build personal wealth. 

Today, America’s homeownership rate is 64.8%. 

There are other marked differences between life today and in the 1940s. Back in the 40s, individuals were staying at the same company for their entire career, whereas today the average tenure to stay with a company is around 4 years. 

In today’s modern world, life changes rapidly, spurring on the need to move to a new state for a job, move closer to a child’s school, or to move closer to family. 

It seems plausible that a system that was built in the 1940s to help build the housing industry is not delivering the same value it once promised. 

In 2020, the National Association of Realtors reported that the typical home seller lived in their home for 8 years before selling. However, this can vary wildly and highly depends on where you live.

Homeowners that buy in fast-growing metro areas, such as Austin or Colorado Springs, tend to have low tenures. Areas such as the North East that experience housing supply shortage and low affordability tend to have higher than average tenures.

For families that need to move frequently, renting may be a better financial decision. Here is a great article that breaks down cost differences between buying and renting.

What if selling fees weren’t so expensive? 

The rate we’re figuring selling fees is in line with realtor fees at 6%, which is often one of the largest fees included in selling a home. Is it possible to reduce those fees? It actually is. 

Aside from negotiating lower fees with your realtor, you can also choose to work with a broker that charges a flat fee or a lower percentage rate to list. 

These options are becoming more popular as consumers are wising up to the fact that getting your home listed on the MLS and with professional photos is ultimately what will get your home sold quickly. 

Let’s take a look at our 16 year example from above, but with realtor fees at 4% total, rather than 6%. 

Compare investing in a house to the stock market- which will help build more wealth?

While this article isn’t a how-to on building wealth, this comparison seems at least worthy of pointing out. As I’ve outlined above, putting money toward a home each month is more or less a place to hold money, but it’s not necessarily going to help you turn a short-term profit when you sell it.  

Let’s look at a loose comparison of comparing your original $300,000 home purchase to taking that same lump sum and investing it. Investing that same $300,000 in the stock market, leaving it alone for 8 years, seeing an average return of 10%, your value would be $643,076.64. 

​​Comparatively, your home value after 8 years would be $391,200, but after selling you have $290,528.

Let’s look at the S&P 500 compared to the housing industry, just for another example. As we can see below, the housing line has been fairly steady throughout history with a gradual increase. Compared to the stock market, which has greater peaks and valleys but also overall stronger increase.

Understandably, not everyone can place $300,000 into an investment portfolio, but it’s worth pointing out that you would see a greater return in places other than your home if wealth building is your goal. 

Summary and Conclusion 

So what’s a family to do in today’s world? We all need a place to live and call home. Raise a family. I’m definitely not advocating against owning a home. In fact, what I do for a living is help people find a home or sell their current home. 

I am advocating for understanding where your hard earned money is going, and saving as much of your equity as you can, in addition to building your wealth in other ways. 

Keep in mind that one of the biggest costs in selling a home, the realtor fees, are held in place tightly by the National Association of Realtors, who actively encourages their Realtors to not lower their fees below what has been charged since before the 1950s. 

Today’s technology has made home buying and selling easier and incredibly accessible, and I believe that costs should comparatively come down, which in turn will help families save more of their money. 

Most families who sell their homes after the national average of 8 years aren’t going to come away with a profit.

The data points to staying in homes longer can help you at least not be losing a lot of money. This is very dependent upon your individual market and location of the home, however.

There is much more to owning a home than just the monetary aspect. 

What do you think? I’d like to hear from you. 

Do you think modern families should pursue home ownership as a way to build their personal wealth?