Property owners stay put for longer

When the average hold period data is paired with the annual volume of sales data, you can see that as the volume of sales has fallen, the length of ownership has increased. Of course, this is a logical explanation, if fewer transactions are taking place people still need to live somewhere, so they are going to […]

Cameron Kusher 24 June, 2012

The increase in the average hold period has also occurred over more recent years, a time in which growth in home values has been significantly lower. Of course, in March 2000 median home prices were much lower than they are today, which would suggest that housing affordability is a barrier to people moving and upgrading their home. The March 2012 national median home price was $400,000 compared to $168,000 in March 2000. Another point to note is that as homes get more expensive the amount of stamp duty payable on the sale increases as does the commission payable to the real estate agent. These may also be factors that are contributing to the increasing length of ownership.

The fact that the average hold period has been increasing as homes got more expensive and the rate of capital gain slowed along with the ongoing decline in sales activity has ramifications for the market and its participants such as:

There is less stamp duty collected by local and state governments because of fewer sales transactions.
There is less commission available for real estate agents and mortgage brokers.
There is less new business for financial institutions; as a result they have to compete more heavily in the refinance space.
Many families are likely to be living in homes which don’t appropriately meet their needs.
The data suggests that, instead of moving, people are looking to renovate their current homes.

Overall, we believe that the increase in the average hold period is a response to a number of factors. The main contributors are housing affordability and the costs associated with moving. However, it also probably has to do with the fact that the type of property available and the types of new housing stock being delivered are not meeting buyers’ needs. Whether that be cost, design or location, it is clear the stock available is not what buyers are looking for.

We anticipate that the average hold period will continue to increase over the coming years as private sector demand for credit growth remains below historic levels, sales volumes remain below their peaks and affordability barriers mean that people choose to upgrade their current home rather than upgrade to a new one.

This article first appeared on RP Data.