Personal Finance

My property's value soared from $400k to $750k since 2019 — what's my next move?

Rich Duprey

Published: December 16, 2024 10:44 am

Last Updated: December 16, 2024 10:45 am

Mark Twain once said, “Buy land, they’re not making it anymore.” That bit of wit was prescient as it recognized the value of real estate and how it would increase in value.

While there was a time when property prices only went up in value, the truism crashed hard during the 2007 to 2009 financial crisis. Speculation, lax lending regulation, and the proliferation of so-called “liar loans” — or loans made without verifying ability to pay — soared.

Although the market briefly returned to the mean, we are in a real estate bubble once more. Depending on the market, housing prices continue to rise, dramatically so in some cases.

That’s the situation one Redditor on the r/economicCollapse subreddit says he finds himself in. He purchased his home five years ago for $400,000 and today it is worth $750,000, a better than 13% compound annual growth rate (CAGR). He asks, “Are people just being extremely hopeful and greedy that this just is going to keep on going up up and away with no end in sight?”

This is what we saw in the 2000s and history does look like it is repeating itself. But what should you do if you find yourself in a similar position where your home’s value has spiraled higher beyond what seems reasonable?

24/7 Wall St. Key Points:

• Although the housing boom has cooled a little, it remains white hot in some markets, causing property values to soar.
• For homeowners looking to capitalize on the rise, there are several options available to leverage the opportunity.
• Also: Take this quiz to see if you’re on track to retire^(Sponsored)

Housing remains hot

According to the Case-Shiller Index, the historical annual average national appreciation rate for housing from 1987 through July 2023 is about 4.8%. That’s only slightly higher than the historical 3% to 4% range of annual increases absent the housing boom of the 2000s or today. But it also includes the post-boom bust. Between the market’s peak in 2006 to its bottom in 2012, housing prices plummeted 33%.

The Redditor’s experience of a 13% CAGR over the past five years is obviously significantly abnormal. But he’s not alone. Anecdotally, my neighbor’s run-down, hollowed-out house was sold last year for $310,000. While it was completely renovated, it was just placed back on the market for $799,000. Zillow says my own house rose $24,000 in value in just one month.

I live in a decidedly middle-class neighborhood, but it remains a hot market because of its proximity to New York City. Admittedly, Zillow’s Z-estimate is not the most accurate barometer for what a house will sell for, but it says my home that I bought 17 years ago for $355,000 is worth nearly $600,000 today. Yet that is  still within the range of a 3% to 4% annual rise in value.

The point is, even as mortgage interest rates remain elevated despite the Federal Reserve cutting the federal funds rate three times, demand for houses remains heated.

Capitalizing on a sizzling market

There are a few things a homeowner can do to take advantage of the situation. The first obvious choice is to sell. Although the Redditor likely hasn’t made much of a dent in the principal owed on his mortgage, the dramatic rise in value means he can still sell the property and walk away with a significant profit. Of course, that means he is giving up a mortgage rate probably below 4% in favor of around 7% if he buys another home. It’s why many homeowners aren’t selling.

If moving is an option, but the homeowner doesn’t want to give up his low-rate mortgage, he could also rent out his property. Rents are rising at about 3% annually, though in 2024 they’re up less than 1%. Over the past three years, though, they had been rising at double-digit rates.

Alternatively, you could take out various loans on the value, whether a home-equity loan, home equity line of credit (HELOC), or cash-out refinancing. There are advantages and disadvantages to each.

Also, there is the do-nothing option. If it is your “forever home,” you just stay put and ignore the crazy valuations going on around you and maintain a focus on your day-to-day financial needs.

Key takeaway

Housing remains hot in some markets, leading to home valuations soaring as they did during the housing bubble of the 2000s. While you could sell or take out loans on the value of the home, the best option could be to just stay put. There is no reason to act if this is the home you want to own forever.