The stagnant home market is threatening more than just buyers and sellers hoping to transact in the year ahead. It’s also risking their break-even point.
Investing in real estate, whether you’re buying a home or an investment property, is generally a safe bet: You’ll make more money than you spend if you keep it long enough. But stubborn mortgage rates, high transaction costs, and slipping home prices are threatening to extend the time it takes to recoup your costs.
“It is important for buyers to set their expectations given the market environment they are buying into,” says Hannah Jones, senior economic research analyst at Realtor.com®.
Common advice recommends staying in a house for five years to break even. However, if you buy in 2025, you might not recover your costs until 2035.
The 5-year rule, explained
Purchasing real estate is expensive. Buyers must come up with the cash for a down payment, agent fees, and closing costs—just to name a few. But homeowners can typically earn that money back in just a few years through home value appreciation.
That’s where the five-year rule comes into play. This common advice recommends that homeowners stay put for at least five years before selling to ensure they reach their break-even point.
But it’s really more of a guideline, says real estate adviser Sarah Strohschein, with Engel and Völkers.
“It always depends on the market. In areas with steady appreciation, homeowners might see returns sooner. In slower markets, holding longer may be necessary to avoid losses.”
How you care for and update your property can also have an impact, she adds. Making value-boosting improvements may also shorten the timeline.
Equity headwinds for 2025 buyers
“In today’s market, buyers should consider whether they are prepared to stay put for a bit longer than was previously required to break even,” says Jones.
The reasons this extended stay might be necessary are threefold:
1. Slowing appreciation
So far in 2025, home appreciation has slowed compared with the past five years. The latest existing-home sales show that home prices are up 3.8% in February 2025 compared with a year before.
While this is still good news for homeowners (property is gaining in value), the pace has markedly slowed since 2021, when home prices appreciated 17.9% on average, according to data from Realtor.com.
That dip will mean that homeowners will have to wait longer to accrue enough equity in their house to make money off a sale. But keep in mind, these are just averages.
There is significant regional variation in appreciation pacing, with home prices up 10.4% in the Northeast, 5.8% in the Midwest, 3.6% in the West, and 1.9% in the South from 2024.
2. High transaction costs
Transaction costs will vary from home sale to home sale, but buyers can anticipate spending between 2% and 5% of the home’s purchase price on closing costs like agent fees and taxes.
Since these expenses are proportionate, high home prices push these costs up and make it even harder for homebuyers to make up the difference in their overhead costs.
3. Slipping home prices
The biggest risk 2025 buyers face, though, is negative equity. In this scenario, buyers might owe more than their home is worth if they buy a house at peak market value right before prices fall.
Places like San Francisco, Miami, and Austin, TX, are just a few popular markets to ring in 2025 with notable drops in median list price compared with the year prior, falling 10.87%, 9.9%, and 7.86% respectively.
As the market continues to cool, other cities might follow their lead.
How long 2025 homebuyers will need to stay in their home
Given these challenges, the estimated break-even timeline for buyers in 2025 may be as long as 10 years. Let’s take a look at the numbers:
We can estimate, based on February 2025 data, that a home purchased this year will have a median sale price of $398,400, a mortgage rate of 6.67%, a tax of 1.7%, and 4% transaction costs.
We’ll assume that this house appreciates at 3.8% (the February 2025 national average), but it’s worth noting that this is a big assumption.
Appreciation rates can vary significantly from year to year based on market factors. Look no further than the past five years for proof: Home prices climbed an average of 9.4% in 2020, 17.9% in 2021, 10.5% in 2022, 1.1% in 2023, and 4.5% in 2024, averaging 8.68% during this period.
Still, assuming a home bought in 2025 has an average annual appreciation rate of 3.8% and a down payment of 10%, it would take a homeowner 10 years to recoup their costs. Even if they double their down payment to 20%, it would take them eight years to reach their break-even point.
But for markets like the Northeast and Midwest, which continue to see significant appreciation, buyers could break even sooner, says Jones.
What if you need to sell before then?
If you need to sell your house in two years, or even six months, you can. You just might not make back the money you spent to purchase the home.
For many homebuyers, this might not matter at all.
“Buying a home is about both finances and lifestyle. Beyond appreciation, it offers stability, equity growth, and tax benefits,” says Strohschein.
Even though the break-even timeline is longer than it has been in recent years, it’s still a good investment.
“The key is making a smart, informed purchase with guidance from a trusted local real estate adviser,” she adds.
After all, the five-year rule—and even our updated 10-year rule—is really more of a guideline.
MARCH 27, 2025
Realtor.com
