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.
A recent survey from Bank of America asked would-be homebuyers what would help them feel better about making a move, and it’s no surprise the answers have a clear theme. They want affordability to improve, specifically prices and rates (see below):
Here’s the good news. While the broader economy may still feel uncertain, there are signs the housing market is showing some changes in both of those areas. Let’s break it down so you know what you’re working with.
Prices Are Moderating
Over the past few years, home prices climbed fast, sometimes so fast it left many buyers feeling shut out. But today, that pace has slowed down. For comparison, from 2020 to 2021, prices rose by 20% in a 12-month period. Now? Nationally, experts are projecting single-digit increases this year – a much more normal pace.
That’s a sharp contrast to the rapid growth we saw just a few short years ago. Just remember, price trends are going to vary by area. In some markets, prices will continue to rise while others will experience slight declines.
Prices aren’t crashing, but they are moderating. For buyers, the slowdown makes buying a home a bit less intimidating. It’s easier to plan your budget when home values are moving at a much slower pace.
Mortgage Rates Are Easing
At the same time, rates have come down from their recent highs. And that’s taken some pressure off would-be homebuyers. As Lisa Sturtevant, Chief Economist at Bright MLS, says:
“Slower price growth coupled with a slight drop in mortgage rates will improve affordability and create a window for some buyers to get into the market.”
Even a small drop in mortgage rates can mean a big difference in what you pay each month in your future mortgage payment. Just remember, while rates have come down a bit lately, they’re going to experience some volatility. So don’t get too caught up in the ups and downs.
The overall trend in the year ahead is that rates are expected to stay in the low to mid-6s – which is a lot better than where they were just a few short months ago. They may even drop further, depending on where the economy goes from here.
Why This Matters
Confidence in the economy may be low, but the housing market is showing signs of adjustment. Prices are moderating, and rates have come down from their highs.
For you, that may not solve affordability challenges altogether, but it does mean conditions look a little different than they did earlier this year. And those shifts could help you re-engage as we move into next year.
Bottom Line
Both of the top concerns for buyers are seeing some movement. Prices are moderating. Rates are easing. And both trends could stick around going into 2026.
If you’re considering a move, connect with a local real estate agent to walk you through what’s happening in your area – and what it means for your plans.
If you’re planning to buy a home this year, there’s one expense you can’t afford to overlook: closing costs.
Almost every buyer knows they exist, but not that many know exactly what they cover, or how different they can be based on where you’re buying. So, let’s break them down.
What Are Closing Costs?
Your closing costs are the additional fees and payments you make when finalizing your home purchase. Every buyer has them. According to Freddie Mac, they typically include things like homeowner insurance and title insurance, as well as various fees for your:
- Loan application
- Credit report
- Loan origination
- Home appraisal
- Home inspection
- Property survey
- Attorney
National vs. Local: Why the Numbers Look So Different
When you search for information about closing costs online, you’ll often see a national range, usually 2% to 5% of the home’s purchase price. While that’s a useful starting point if you’re working on your homebuying budget, it doesn’t tell the whole story. In reality, your closing costs will also vary based on:
- Taxes and fees where you live (like transfer taxes and recording fees)
- Service costs for things like title and attorney work in your local area
While the home price is obviously going to matter, state laws, tax rates, and even the going costs for title and attorney services can change what you expect to pay. That’s why it’s important to talk to the pros ahead of time so you know what to budget for. It can put you in control before you even start shopping.
To give you a rough ballpark, here’s a state-by-state look at typical closing costs right now based on those factors for the median-priced home in each state (see map below):
As the map shows, in some states, typical closing costs are just roughly $1-3K. In a few places, they can be closer to $10-15K. That’s a big swing, especially if you’re buying your first home. And that’s why knowing what to expect matters.
If you want a real number to help with your budget, your best bet is to talk to a local agent and a lender. They can run the math for your price range, loan type, and exact location.
And just in case you’re looking at your state’s number and wondering if there’s any way to trim that bill, NerdWallet shares a few strategies that can help:
- Negotiate with the seller. Ask for concessions like a credit toward your closing costs.
- Shop around for homeowner’s insurance. Compare coverage and rates before you commit.
- Check for assistance programs. Some states, professions, and neighborhoods offer help. Your agent and lender can point you to what’s available locally.
Bottom Line
Closing costs are a key part of buying a home, but they can vary more than most people realize. Knowing your numbers (and how to potentially bring them down) can go a long way and help you feel confident about your purchase.
Connect with a local agent or lender to take a look at typical closing costs in your area and get your personalized estimate, so you can craft your ideal budget.
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