Between 2000 – 2009, the average homeownership duration was only about four-to-five years. It was too short to build real wealth. As of 2023, the average homeownership tenure has risen to roughly 13 years according to First American Data & Analytics and Redfin.
Post-pandemic, people are simply owning their homes for longer because we're utilizing our homes more. Further, more people are investing in real estate for passive income and their retirement needs.
According to the US Census Bureau, only 37 percent of Americans have lived in their homes for more than 10 years. This is unfortunate, because in order to generate real wealth from real estate, you need to own your property for as long as possible.
The Average U.S. Homeownership Duration
Take a look at the chart below that shows the average U.S. homeownership tenure in years. According to ATTOM Data Solutions, as of Q22020, the average is around eight years. This is a big increase of only four years between 2000 – 2009.
However, if you look at the latest data in 2022 for 2021 from Redfin, the MEDIAN homeownership tenure in America is closer to 13 years. It’s interesting how the median homeownership tenure is much longer than the average. The one clear trend is that the average and median homeownership tenures are going up.
Why Is The Average Homeownership Tenure Going Up?
The reason why the average U.S. homeownership tenure has increased is because Americans have wisened up to the fact that longer homeownership tenure is better for our finances.
It costs a lot to sell a home. All the taxes and fees can easily take out 6-10% from the value of the home. It's much better to let your investment compound in value over time without a tax event.
Further, once the 2008-2009 housing crisis hit, U.S. homeowners stayed put longer because it also became harder to take out a mortgage. Lending standards tightened up and Americans were forced to be happy with the homes they already had.
As the economy and home equity recovered, Americans remained disciplined and continued to live in their homes for longer. As a result, the homeownership tenure continued to increase.
Average Homeownership Duration Post-Pandemic
When the pandemic hit the U.S. in March 2020, most Americans decided to keep their homes for longer. Who wants to move during a pandemic and risk getting sick? As a result, inventory plummeted and home prices ironically shot up.
Meanwhile, the desire to own a home and stay in a home is even greater than ever before. We are all spending more time at home working from home and homeschooling more of our children. Now that the pandemic is receding, we are slow to go back to our old ways. Further, more people have decided to buy larger homes.
The intrinsic value of a home has gone way up. How could it not if we are now spending 20% – 40% more time at home than we were pre-pandemic? The housing market will likely boom for years to come as there is a structural demand and supply shift.
Average Homeownership Tenure For Top 25 Metro Areas
Below is more data that show the average homeownership duration for the top 25 metro areas in America as of April 2021. The more expensive the metro area, the longer the average tenure.
Given California has Proposition 13, where property tax increases are limited, homeowners are incentivized to hold for longer. Many Californian homes bought decades ago are now worth tremendous amounts. However, their homeowners pay a lower absolute property tax amount than new buyers of much smaller homes.
Why I Was Considering Selling
Back in 2012, I was considering selling a San Francisco house I bought in 2005. I tried, but couldn't find any buyers! As a result, I refinanced the mortgage before negotiating a large severance, lowered my payment by 30%, and left Corporate America for good. Further, home prices have skyrocketed since.
It was only in 2017, 12 years after I bought the house, did I finally sell the property. I did so because the property had appreciated by over $1 million since 2012 and I wanted to spend more time being a first-time father.
If I didn't have a son in 2017, I probably would have held onto my rental property today. Given interest rates have plummeted, the value of rental properties has gone way up because the value of rental income has gone way up.
I used $500,000 of the $1,800,000 in proceeds after paying off my mortgage and fees and invested it in real estate crowdfunding. My goal was to earn the same amount of cash flow as my rental ($60,000/year), but with $2,240,000 less exposure.
My favorite real estate crowdfunding platform is Fundrise. Fundrise has created diversified real estate funds the generates 100% passive income to investors. Its historical performance has been quite steady, especially during down years in the S&P 500. Fundrise is free to sign up and explore.
Another area of opportunity, if you have the energy and time, is to buy more rental properties. It now takes a lot more capital to generate the same amount of risk-adjusted income. However, the value of rental properties haven't gone up nearly as much.
As a father of two young kids under four, I've got my hands full to buy more physical rental properties. However, I do recommend everybody keep their eyes open for any good rental property deals.
Average Homeowner Tenure Should Continue To Go Up
Now with mortgage rates rapidly increasing in 2022 and beyond, the average homeowner tenure should continue to increase.
Based on the percentage of mortgages by interest rates, over 92% of homeowners with a mortgage have locked in rates below 5%. As a result, even fewer homeowners will be willing to move and sell.
Personally, I plan to own my existing home for well over 10 years because it is our forever home. And if I happen to gain a lot of wealth in 10 years, I will simply rent out our existing home and buy another home.
More people are realizing the power of investing in real estate. As a result, more people are holding on for longer and buying more homes.
Refinance Your Mortgage
It is nuts how low interest rates have gone. It's cheaper for me to live in a nicer single family home today than it was back in 2005 thanks to lower mortgage rates.
I bought a home in 2020 with a 7/1 ARM at only 2.125% with minimal fees. Back in 2005, I had a 5/1 ARM with a 4.25% mortgage rate.
Unfortunately, mortgage rates shot up due to inflation and Fed rate hikes. However, I suspect mortgage rates will go back down again as inflation cools. I have no regrets getting an ARM despite mortgage rates going up.
More People Are Investing In Real Estate For The Long-Term
The median and average homeownership duration in America should continue to increase. Americans value their homes more today because we're spending more time at home. Further, more Americans are investing more in real estate for their retirement.
Personally, I've invested $810,000 in real estate crowdfunding to generate more passive income. I own three rental properties in San Francisco which I plan to hold forever. Further, I want to invest in lower-cost areas that have the potential to be the next boom city. So far, I own a fund and 14 individual investments left.
These are my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the easiest way to gain real estate exposure.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
It wouldn't surprise me if the average homeownership duration rises by several more years by the year 2030. More people are going to own their homes forever, which will drive down inventory and drive up prices. Hold onto your homes for as long as possible and prosper.