First-Time Buyers
The Five-Year Rule for Home Price Perspective
Headlines are saying home prices are starting to dip in some markets. And if you’re beginning to second guess your plans based on what you’re hearing in the media, here’s what you need to know.
It’s true that a few metros are seeing slight price drops. But don’t let that overshadow this simple truth. Home values almost always go up over time (see graph below):
While everyone remembers what happened around the housing crash of 2008, that was the exception – not the rule. It hadn’t happened before, and hasn’t since. There were many market dynamics that were drastically different back then, too. From relaxed lending standards to a lack of homeowner equity, and even a large oversupply of homes, it was very different from where the national housing market is today. So, every headline about prices slowing down, normalizing, or even dipping doesn’t need to trigger fear that another big crash is coming.
Here’s something that explains why short-term dips usually aren’t a long-term deal-breaker.
What’s the Five-Year Rule?
In real estate, you might hear talk about the five-year rule. The idea is that if you plan to own your home for at least five years, short-term dips in prices usually don’t hurt you much. That’s because home values almost always go up in the long run. Even if prices drop a bit for a year or two, they tend to bounce back (and then some) over time.
Take it from Lance Lambert, Co-Founder of ResiClub:
“. . . there’s the ‘five-year rule of thumb’ in real estate—which suggests that most buyers can buffer themselves from mild short-term declines if they plan to own a property for at least that amount of time.”
What’s Happening in Today’s Market?
Here’s something else to put your mind at ease. Right now, most housing markets are still seeing home prices rise – just not as fast as they were a few years ago.
But in the major metros where prices are starting to cool off a little (the red bars in the graph below), the average drop is only about -2.9% since April 2024. That’s not a major decline like we saw back in 2008.
And when you look at the graph below, it’s clear that prices in most of those markets are up significantly compared to where they were five years ago (the blue bars). So, those homeowners are still ahead if they’ve been in their house for a few years or more (see graph below):
The Big Picture
Over the past 5 years, home prices have risen a staggering 55%, according to the Federal Housing Finance Agency (FHFA). So, a small short-term dip isn’t a significant loss. Even if your city is one where they’re down 2% or so, you’re still up far more than that.
And if you break those 5-year gains down even further, using data from the FHFA, you’ll see home values are up in every single state over the last five years (see map below):
That’s why it’s important not to stress too much about what’s happening this month, or even this year. If you’re in it for the long haul (and most homeowners are) your home is likely to grow in value over time.
Bottom Line
Yes, prices can shift in the short term. But history shows that home values almost always go up over five years. So, whether you’re thinking of buying or selling, remember the five-year rule, and take comfort in the long view.
When you think about where you want to be in five years, how does owning a home fit into that picture?
Connect with an agent to discuss how to get there.
If you paused your plans to move because of high rates or prices, it may finally be time to take a second look at your numbers. Affordability is improving in 39 of the top 50 markets, according to First American. And that’s the 5th straight month where buying a home has started to get a little bit easier.
Let’s break this down into real dollars, so you can see the difference this could make for you (and your move).
Monthly Payments Are Coming Down
One of the clearest signs of this shift is in monthly payments. The latest data from Redfin shows mortgage payments on a median-priced home are now $283 lower than they were just a few months ago (see graph below):
This kind of monthly savings adds up fast, and totals nearly $3,400 over the course of a year.
While this isn’t enough to completely change the affordability game overnight, think about it this way. When you’re putting together a homebuying budget, a few hundred dollars could be the difference between being comfortable buying and feeling like money’s a bit tight.
And from a home-search perspective, it could even be enough to change the price point you can look at. According to Redfin:
“A borrower with a $3,000 monthly budget can now afford a $468,000 home, about $22,000 more than in June.”
And that’s a big deal if you haven’t found a home you love in your price range yet. It gives you a little more flexibility to find the one that’s right for you.
Either way, that’s a big win.
What’s Behind the Shift?
Two key factors are working in your favor right now:
- Mortgage rates have eased from their high earlier this year
- Home price growth is slowing in many markets
Both of those things help your bottom line and give you a bit of breathing room if you’re buying a home. As Andy Walden, Head of Mortgage and Housing Market Research at ICE Mortgage Technology, says:
“The recent pullback in rates has created a tailwind for both homebuyers and existing borrowers. We’re seeing affordability at a 2.5-year high . . .”
Whether you’re a first-time homebuyer or someone looking to move-up into a bigger house, the shifts happening this year could make your move possible. Connect with a trusted agent or lender to see what your monthly payment would look like at today’s rates.
For you, the savings could be the difference between “not yet” and “let’s go.”
Bottom Line
Affordability is improving in many markets. And that resets the math on your move.
If you’ve been sitting on the sidelines, this is your cue to start looking again. Connect with a local agent or trusted lender to run the numbers together so you can get a rough estimate of how much more buying power you may have than you did just a few months ago.
You want mortgage rates to fall – and they’ve started to. But is it going to last? And how low will they go?
Experts say there’s room for rates to come down even more over the next year. And one of the leading indicators to watch is the 10-year treasury yield. Here’s why.
The Link Between Mortgage Rates and the 10-Year Treasury Yield
For over 50 years, the 30-year fixed mortgage rate has closely followed the movement of the 10-year treasury yield, which is a widely watched benchmark for long-term interest rates (see graph below):
When the treasury yield climbs, mortgage rates tend to follow. And when the yield falls, mortgage rates typically come down.
It’s been a predictable pattern for over 50 years. So predictable, that there’s a number experts consider normal for the gap between the two. It’s known as the spread, and it usually averages about 1.76 percentage points, or what you sometimes hear as 176 basis points.
The Spread Is Shrinking
Over the past couple of years, though, that spread has been much wider than normal. Why? Think of the spread as a measure of fear in the market. When there’s lingering uncertainty in the economy, the gap widens beyond its usual norm. That’s one of the reasons why mortgage rates have been unusually high over the past few years.
But here’s a sign for optimism. Even though there’s still some lingering uncertainty related to the economy, that spread is starting to shrink as the path forward is becoming clearer (see graph below):
And that opens the door for mortgage rates to come down even more. As a recent article from Redfin explains:
“A lower mortgage spread equals lower mortgage rates. If the spread continues to decline, mortgage rates could fall more than they already have.”
The 10-Year Treasury Yield Is Expected To Decline
It’s not just the spread, though. The 10-year treasury yield itself is also forecast to come down in the months ahead. So, when you combine a lower yield with a narrowing spread, you have two key forces potentially pushing mortgage rates down going into next year.
This long-term relationship is a big reason why you see experts currently projecting mortgage rates will ease, with a fringe possibility they’ll hit the upper 5s toward the end of next year.
Here’s how it works. Take the 10-year treasury yield, which is sitting at about 4.09% at the time this article is being written, and then add the average spread of 1.76%. From there, you’d expect mortgage rates to be around 5.85% (see graph below):
But remember, all of that can change as the economy shifts. And know for certain that there will be ups and downs along the way.
How these dynamics play out will depend on where the economy, the job market, inflation, and more go from here. But the 2026 outlook is currently expected to be a gradual mortgage rate decline. And as of now, things are starting to move in the right direction.
Bottom Line
Keeping up with all of these shifts can feel overwhelming. That’s why having an experienced agent or lender on your side matters. They’ll do the heavy lifting for you.
If you want real-time updates on mortgage rates, reach out to a trusted agent or lender who can keep you in the loop and help you plan your next move.
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