When I was in my 20s, people warned me to wait until I was sure I could live there for at least five years before buying a house.
The idea is that the financial benefits of ownership will eventually outweigh the cost of buying, including the down payment, closing costs, and other expenses that I wouldn’t face as a renter.
Once I reach a break-even point, my house can become a vehicle for building wealth.
Jean Chatzky, a personal finance author and founder and CEO of HerMoney Media, has long advocated for the “five-year rule,” saying that if you don’t want to stay somewhere for at least five years, you might be better off renting.
Chatsky didn’t invent the concept, but she has been popularizing it since her 2014 book Money Action.
However, since 2014, buying and owning a home has become more expensive. Home prices and mortgage rates are higher. That means the math of the five-year rule may no longer hold.
Chatsky recently revisited the idea of the five-year rule in a podcast interview.
Chatzky suggests 6 or 7 years might be a better timetable for home buying
While Chatsky has yet to officially deny the five-year rule, she did mention the extended timeline during an Aug. 28 episode of Halataha’s Young and Profiting (YAP) podcast.
“If you’re not going somewhere in five years, I don’t think you should buy it,” Chatsky told Taha. “The purchase cost is too high.”
Mortgage rates in particular make potential homebuyers nervous. The average 30-year fixed mortgage rate hit 7.28% on Oct. 1, the highest in nearly three years, according to Freddie Mac.
Read more: Jean Chatzky issues strong new warning about 401(k), IRA dangers
“I don’t think mortgage rates at this level should deter people who want to stay in one place for six, seven or more years,” she continued. “Hopefully you’ll eventually get a chance to repay your loan.”
If you live in your home for a few years, your mortgage rate may drop during that time and you may be able to refinance for a more affordable rate, Chatsky said.
Chatsky isn’t abandoning the five-year rule, but her comments suggest that today’s buyers may want to consider beyond five years when evaluating whether a purchase makes financial sense.
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Zillow puts the typical break-even point at 6.2 years
Research from Zillow supports Chatzky’s assertion that it can take six or more years to break even financially on a home purchase.
Proptech analysis in August finds typical U.S. household needs 6.2 years You can break even by buying a single-family home compared to renting. That’s assuming they can put down a 20% down payment – something many buyers can’t afford.
“There’s a common belief that saving early to buy a home is a smart financial move, but the reality is more nuanced,” writes Zillow senior economist Kara Ng. “Buyers should consider not only when they can afford to buy, but also how long they need to stay before owning makes more financial sense than renting.”
More housing markets:
- Zillow reports surprising real estate market shift
- Redfin says October may be the best time to buy a home
- Lennar gives real estate market a harsh reality check
However, the timeline for breaking even depends on where you live. After purchasing a single-family home, it typically takes homeowners 5.3 years to break even in Las Vegas, 9.5 years in Dallas and 18.4 years in Seattle, according to August Zillow research.
Time is shortened if you buy a starter home, which Zillow defines as “the average home in the lowest third of home value in a given area.”
By choosing a starter home, break-even time nationwide is reduced to 2.6 years After purchase.
The typical homeowner must live in their home for 3.7 years in Nevada, 5.9 years in Dallas, and 13.2 years in Seattle.
Homeownership is a lifestyle choice, not an investment
Some personal finance figures tout home ownership as essential to building wealth. But Chatsky didn’t have that mentality. She admits that buying isn’t for everyone, especially if you don’t plan to stay in one place for a long time.
“In some cases, renting is better,” she told Taha.
but if you Do Planning to live in your home for a long time, purchasing a home and building equity can be a great way to build the life you want. Your home equity becomes a financial buffer.
“You can use this cushion to improve your standard of living,” Chatsky said. “You can use it to pay for long-term care. You can use it to keep a roof over your head. You can use it to sell and move to Costa Rica. You have options because you have this extra cushion.”
What’s the bottom line? If you’re buying a primary residence, try not to think of it as an investment. Think of it as a lifestyle choice. If the purchase fits your timeline and life goals, it may be the right move.
That doesn’t mean a home can’t help you build wealth. This means your primary residence does not have to be appraised like stocks or other investments.
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