From COVID Boom to Calm: Understanding the New 5-Year Rule for Home Value 😷📈

Don't Get Caught by COVID-Era Expectations: Why the Market is Rebalancing

Jul 17, 2025

The 5-Year Rule: Your Compass for Today's Home Prices 🧭💰

If you're thinking about buying or selling a home, you've likely heard a lot about the incredible gains homeowners saw during the pandemic. But here's a truth bomb: the unprecedented equity increase during COVID-19 was a unique anomaly and simply unsustainable. 📉 If you're buying a home now, you absolutely cannot expect the same sky-high returns as homes bought in that extraordinary period. We're officially leaving the frenzied, stimulus-fueled market behind and entering a more predictable, normalized real estate environment.

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Why the COVID-Era Gains Won't Be Repeated (and Why That's Good!)

Remember those dizzying days of multiple offers, waived contingencies, and homes selling for tens of thousands over asking? That was the housing market on overdrive, fueled by a unique cocktail of historically low interest rates, government stimulus checks, and a sudden, widespread desire for more living space. Home prices soared, creating equity gains that were, frankly, once-in-a-lifetime.

Consider this: Home prices saw a staggering 40% increase between January 2020 and June 2022, according to data from the S&P CoreLogic Case-Shiller National Home Price Index. This rapid appreciation outpaced historical norms by a significant margin. For context, the long-term average for annual home price appreciation has typically hovered around 3-5%. The pandemic boom was an exception, not the rule.

Now, as we move into mid-2025, that era of explosive growth is firmly in the rearview mirror. Mortgage rates have stabilized at higher, more sustainable levels, and the supply of homes has slowly begun to increase. This shift means a healthier, more balanced market, where sensible decisions, not frantic ones, lead to success.

The New Normal: Understanding the 5-Year Rule 🏠🗓️

So, what does this "normalized" market mean for you, the aspiring homeowner or savvy seller? It brings us to the 5-Year Rule for Home Prices. This isn't a hard-and-fast guarantee, but a crucial guideline that helps set realistic expectations for your real estate investment.

Historically, for a home to genuinely be a good financial investment, providing enough appreciation to offset buying and selling costs (like commissions, closing costs, and moving expenses), you generally need to own it for at least five years. This timeframe allows for typical market fluctuations to even out and for steady, sustainable appreciation to build.

Why five years?

Market Cycles: Real estate markets move in cycles. While a pandemic might disrupt things temporarily, the underlying economic factors and demand/supply dynamics tend to play out over several years. Holding for five years helps you ride out any short-term dips and capitalize on the long-term upward trend of property values.
Building Equity: Beyond just price appreciation, those first few years of a mortgage largely go towards interest. As time progresses, more of your payment goes towards the principal, accelerating your equity build-up.
Cost Recoupment: The initial costs of buying and selling a home are significant. Selling too soon after purchasing often means you haven't accumulated enough equity to cover these expenses, potentially leading to a loss.

What This Means for You: Practical Steps for Homebuyers & Sellers

For Today's Homebuyers: This isn't a market for quick flips; it's a market for thoughtful, long-term investment.

Think Long-Term: If your plan is to sell within a year or two, you might not see the significant returns you hope for. Consider your purchase a solid, foundational investment for your future, not a get-rich-quick scheme. This approach will save you stress during negotiations.
Focus on Value: In a normalized market, negotiating home repairs with the seller becomes more viable. Pay attention to the quality of the home, its location, and its potential for long-term enjoyment and appreciation.
Budget Wisely: Understand that your returns will be steady, not explosive. Ensure your finances can comfortably support homeownership, considering potential interest rate fluctuations. Knowing how to save on closing costs can also make a big difference.

For Home Sellers: If you bought before or during the pandemic, you're likely sitting on substantial equity.

Leverage Your Equity: You have a strong position! Understanding your equity can empower you to make strategic moves, whether it's upgrading, downsizing, or relocating.
Price Strategically: While you might not see bidding wars, a well-priced home in a desirable location will still attract serious buyers.
Highlight Long-Term Value: Emphasize the quality and enduring appeal of your property to potential buyers.

The "5-Year Rule" serves as a pragmatic guide for anyone navigating the current real estate landscape. It shifts our focus from fleeting, unsustainable gains to the steady, reliable growth that characterizes a healthy market. This isn't a moment for FOMO (fear of missing out), but for smart, informed decisions that build lasting wealth and peace of mind.

What's your biggest question about navigating today's home prices? Share your thoughts below! 👇

Julianne Clark | Your Lowcountry Compass