A profitable take on homebuying

If you profit from a stock trade, or were an early bitcoin buyer who cashed in, you’ll face a tax on your gain. But when you buy a home, and later profit on the sale, you can escape tax.

Indeed, the exemption allowing single homeowners $250,000 and married homeowners $500,000 in tax-free profits from a primary home sale was left untouched by the 2017 tax reform.

And recent research shows that lots of homeowners who purchased a few years ago now stand to profit handsomely.

In the last quarter of 2017, homeowners averaged $54,000, the highest in more than 10 years, according to ATTOM Data Solutions.

Other research by real estate website Zillow finds that the biggest gains are going to those who may need the profits the most — owners of more affordable starter homes. Zillow senior economist Aaron Terrazas explains that the price gain in lower priced homes is due to the fact that their values plunged deeper than more expensive properties in the recession, and that there’s been a tight supply of starter homes on the market.

But homes do have something in common with other investments — gain isn’t guaranteed, and is impacted by timing. In the aftermath of the recession, many were afraid to buy, fearing continued price declines.

Since the year 2000, ATTOM Data shows price appreciation averages 3.5 percent annually.

Another investing tenet — buy and hold — also applies. Owners who stay “for a longer period will typically weather the cycles during which house prices drop and end up with a higher home price when they are ready to sell,” says Angi Chen of the Boston College Center for Retirement Research. CoreLogic data show that those late 2017 sellers stayed an average of about eight years.

No one knows the future with certainty, but Terrazas says, “home values are still growing very quickly relative to historic norms.”

Because the tax exemption for home profits was preserved, more owners are expected to downsize and cash out, or use the profit to trade up.