It Takes More Than 13 Years To Make A Profit On A Home Purchase, Zillow Says

New home buyers will have to wait about 13.5 years on average before breaking even on their home purchases, or selling the property for a profit, according to an analysis by real-estate website Zillow.

The report took into consideration the highest mortgage rates in 20 years and pricier homes in the U.S.

"As mortgage rates near 8% and home prices level off, it now takes longer to break even on a home purchase when considering the cost of interest," says the report by Zillow Senior Economist Nicole Bachaud. "The time it takes to recover your initial investment in a home can be extended and depends on various factors, including the current real estate market and your personal situation."

The break-even period is higher in more affordable markets. Cleveland, Ohio, leads the list, with 22 years and 10 months to recover the investment, considering a down payment of 5%, the most clicked real-estate website of the U.S. said.

In more expensive markets, buyers can break even faster: that period falls to 6 years and 11 months in San Jose, California, also with a down payment of 5%.

"These metros have a strong history of consistent growth, allowing homeowners to recoup their initial investment in a relatively shorter period of time if home values rise at the same rate they have risen historically," the report says.

The average 30-year fixed mortgage rate reached 7.79% in the week ending Oct. 26, according to Freddie Mac. It was the seventh consecutive increase and the highest level since December 2000. In contrast, the rate stood at 7.08% a year ago.

Average prices are also climbing because of the low inventory of homes for sale. Zillow estimates that the typical U.S. home value is expected to rise by 3.3% in 2023, according to another report, released on Oct. 18.

The Zillow analysis on break-even periods took into account "typical home values and forecasted home value increases based on Zillow's Home Value Index, and assumptions for closing costs, agent fees at the time of sale, home maintenance costs and interest payments." The estimates were based on market conditions of July, when the analysis was done.

"Still, homeownership offers lasting financial benefits because you can lock in a fixed mortgage payment, unlike renting where costs typically rise each year," the report said.