Locked In: Why Americans Are Hanging On to Their Homes Longer Than Ever

A new report from CoreLogic indicates that the median American homeowner’s housing tenure was 12 years, the longest since 2022. While a handful of years may not seem like a lot, in the context of housing it is more than significant – it is completely upending how homes are being purchased and sold. The combination of soaring home prices, combined with slightly higher mortgage rates, have made a large swath of American homeowners feeling rather “houseLocked.” In a tight housing supply and increasingly hot market, this has created a perfect storm for first-time buyers who have seen their bids rejected time and again. Now, in a scene more akin to eBay than a home buying transaction, these hopefuls are now engaged in a war of multiple bids that make them feel far from the winning bidder.

Why do homes in LA take 20 years to sell? It turns out California is the state with the longest average ownership tenure and LA in particular is one of the most expensive real estate markets in the world. The reason a home in California can take 20 years to turn over is because of a little thing called Proposition 13. What this law does is severely limits property tax increases to 1% annually. This clearly provides a more than fair incentive to keep your residence, as the potential loss from selling and having to pay full freight on taxes is high. The tax reform law of 2017, Proposition 19, was thought to be a bit of a house-moving law, in an effort to curb the rapidly appreciating residential market in California. So now more than ever, there is an incentive to stay put, and thereby lock-in the supply of homes turning over in the market that is already the most illiquid in the world – particularly in price points with the highest values.

This isn't a COVID-19 anomaly. Homeownership tenure has been on the rise over the past two decades, increasing from roughly 6.5 years in 1999 to 11 years in 2022. The size and structure of the population has a lot to do with this trend. Many baby boomers and Gen Xers are choosing to stay in their homes longer. Having mortgages with rates that benefit their current financial situation, and being locked into those rates through affordable refinancing, has also played a part. Attempting to move into a new home with the current market rates can be prohibitively expensive, especially when you factor in the additional costs associated with relocating. On the demand side, the choices available to young buyers have also decreased, and affordability and other barriers are contributing to a reduction in turnover.

Affordability and turn-over rates vary greatly depending on housing prices and the demographics of the city. In more affordable markets like Louisville and Las Vegas the average annual turn-over rate is less than 9% because more people buy and sell homes due to affordability issues and job changes. Also, tourism driven cities like seasonal jobs, and rental properties, that change ownership more frequently due to fluctuating populations of tourists and real estate investors, are exceptions to the new American Dream of longer term ownership of a home.

As mortgage rates fall to below 6% for the first time in years and prices rise at a slower pace, some industry players predict that an increasing number of current homeowners will choose to buy a new property. However, there is skepticism that these individuals will enter the market in large numbers, with many saying that the current real estate market is characterized by a high percentage of non-moving homeowners, much like a game of musical chairs, except with fewer actual seats being ceded.

Practical Investment Insights for Buyers & Investors:

• Expect to face more aggressive pricing as supply remains tight, with the most pronounced increases impacting entry-level properties.
• Older households, that have longer-term views of their real estate investments, may keep family size homes off the market and set the stage for more downward price pressure on these larger homes, and increasingly on smaller starter homes and newly constructed homes.
• Keep an eye on mortgage rates; if they fall to near 6% it could eventually start to ease some of the current constraints.
• Shorter Term / Higher Turnover: Are you looking for a property to flip and you want to be able to resell quickly? Consider purchasing in a market with shorter term properties and a higher turnover rate.

The Final Takeaway:

SOME PATIENCE IS REQUIRED IF YOU’RE LOOKING TO MOVE INTO A NEW HOME. THE U.S. HOUSING MARKET ISN’T MOVING NEARLY AS QUICKLY AS YOU MAY LIKE. When you factor in the long-term lock-in trend, being aware of market dynamics can be invaluable in knowing when to act on any potential deals that arise.