Home sellers made $57,500 on average so far in 2019. Is this enough to make you a homeowner?

Erik J. Martin
The Mortgage Reports contributor


Many think of buying a home as an investment. That’s because you build equity as you pay down the principal on your mortgage. Plus, property values typically increase over time.

New research reveals that many owners who recently sold pocketed a nice profit on their homes. Mid-5 figures, in fact. That’s a good sign that buying a home as an investment can be financially rewarding.

But buying a home as an investment doesn’t pay off for everyone. Real estate market conditions can vary. There’s no guarantee that you’ll come out ahead when it’s time to sell.

Hence, it’s important to research homes for sale carefully. And consult with experts like an experienced real estate agent and skilled financial planner.

Ready to buy a home? Start here. (Jul 14th, 2020)

What new data tell us

ATTOM Data Solutions recently surveyed homeowners who sold in the first quarter of 2019. Among the report’s fascinating findings:

  • The average price gain was $57,500, on average, since purchase. That’s down from an average gain of $60,000 the previous quarter. But it’s up from one year ago.
  • The $57,500 average gain equates to a 31.5 percent return on the purchase price, on average.
  • Sellers owned their homes for an average of 8 years.
  • Home prices still exceed pre-recession highs in 59 percent of local markets.
  • Among 123 metro markets analyzed, those with the highest average home seller returns this quarter were: San Jose (84.1%); San Francisco (70.9%); Seattle (63.1%); Modesto, California (59.7%); and Salt Lake City (56.5%).

How to interpret the data

Todd Teta is ATTOM Data Solutions’ chief product officer. In the report, Teta said: “We are starting to see homes sales prices and profit margins softening for the nation, and the average homeownership tenure did see a slight dip from last quarter.”

Teta added, however, that “home prices are still above pre-recession peaks in 59 percent of local markets. And as the buying season starts to kick into gear, the next few months may provide even more answers to the question of whether a lasso is indeed around the market or if the recent trend is a temporary bump in the ride.”

Realtor and real estate attorney Bruce Ailion says the report’s results make sense. It supports the belief that buying a home as an investment is wise.

“Someone who bought a home in 2006 at the peak of the market and sold today may reap a small profit. But someone who bought eight years ago, at the bottom of the market, might have a much bigger profit. So $57,500, or a 31.5 percent return, seems appropriate,” says Ailion.

Keith Baker is the Mortgage Banking Program coordinator and faculty at North Lake College. He says it’s important to consider these numbers in context before buying a home as an investment.

“It’s not surprising that sellers who purchased a home between 2009 and 2012 have made gains on their sales. One can always make money buying at the bottom and selling after a recovery,” notes Baker.

Buying a home as an investment

If you’re shopping for a home, you should be careful. Viewing your home as an investment could be a mistake, some experts agree.

“Buying a home rather than renting can make financial sense. And it can help you grow your net worth in the long term. But it’s dangerous to think of your home as an investment,” says G. Brian Davis, real estate investor and co-founder of SparkRental.

Say your home appreciates in value. “Problem is, you can’t access your equity without selling the home or taking on debt through a home equity loan or HELOC,” says Davis.

Plus, regarding your home as an investment can cause you to justify overspending on housing.

“You can tell yourself, ‘Well, sure, it’s more than we wanted to spend. But it’s an investment,’” Davis says.

Instead, Davis adds, true investments should be strategic, diversified and generate passive income. Good examples include stocks, stock funds, rental properties, REITs and bonds.

“Buyers should think of their home as an expense, not an investment.” –G. Davis Baker, co-founder, SparkRental

“Suppose 90 percent of your net worth is tied up in your house. That means your wealth is dangerously tied to one asset in one location,” notes Davis.

That’s why Davis and Baker believe buyers should think of their home as an expense, not an investment.

“The 31.5 percent return in the ATTOM report equates to less than 4 percent per year on an unleveraged investment. That return is really not that great,” says Baker. “An unleveraged investment in an S&P 500 indexed fund over that same eight-year period would have returned 222 percent.”

The flip side of the argument

On the other hand, others feel that buying a home as an investment is smart.

“Historically, well-located quality real estate has increased in value at a much greater rate than inflation,” says Ailion. “The trick is to buy quality, hold for the long term, and try to beat other indexes.”

Say you bought a brand-new $200,000 home and put down $6,000. You held it for three years and sold it for $231,500 for a net profit (after selling costs) of $18,000.

“Your $6,000 invested returned you $18,000 in three years. That equates to 100 percent per year. Try doing that in the stock market,” Ailion says.

Real estate, unlike other asset classes, allows owner occupant investors to borrow long term and with very low down payments and interest rates. Also, you pay no capital gains tax if you meet certain criteria, unlike with stocks.

“This makes real estate one of the best investments around,” insists Ailion.

Start building your net worth

Thought about finally breaking into the housing market? Real estate is still a good deal, with interest rates as low as they are.

See if you can qualify to buy a home and check today’s rates at the below link.

Verify your new rate (Jul 14th, 2020)