eh... don't pop the Champaign on your 10% value increase just yet

It's only worth 10% more when you sell it for 10% more. Right now home closings (the finalized deals) are 50% lower than before the pandemic and lower than in 2007. So selling your house to get that 10% increase is going to be hard.

But even if you did sell it, then it isn't quite worth celebrating yet, because it is likely that your 10% increase estimate is because the entire market is selling 10% higher.

So the problem with this is that if you sell your house and take your handsome 10% profit, you still can't pop the champaign because as it turns out... having a home is one of those sort of necessary things of survival. So if you want to go out and buy another home that is roughly similar to the one you previously had, then it will cost you 10% more than the last time you bought a house, which just so happens to be roughly the same price that you just sold for, so you end up not really making anything.

But wait, there's more. Because you sold you need to pay closing fees, which includes generally 6% (see article) in agent fees, plus various closing costs which generally come out to around 10-15% of the home price. So you gained 10% in the sale price of your home, but you lose 10% or more when you close the deal, which wipes out your "profits".

Oh, but you only bought a house "recently" which means you probably lost 10-20% in closing fees when you bought it. So your investment is actually more like 110% - 120% of the value of the home. So again, gaining 10% value just brings you up to even. But add the seller closing fees (mentioned above) and it pulls you back down, to losing money.

Oh, and now with the cash in hand you buy the next house which is 10% more than before and interest rates are probably several percentages points higher than before as well. So not only is the house 10% more, plus you lost 10% in your last deal, but now your payment will be higher even on the same loan amount thanks to higher interest rates.

People underestimate interest rates all the time too. Let's say you had a $400k loan before at 4.5% interest. Well the 30yr fixed payment on that is around $2,500 /mo. Now lets say you do all the shenanigans above and end up with another $400k loan again in 2023, but it is 6.5% interest. It is only a 2 point increase in interest, not a big deal right? Wrong. The same loan amount but on 6.5% interest is $3,000 /mo. So you are now paying $500 a month more for the same loan and home value as just 18 months ago and you would pay 20% more over the lifetime of the loan.

Just to instill the shock and awe effectively, I will use the same real numbers as above. Let's say you had a $400k loan at 4.5% interest before (the early 2022 rate). You would have paid $851,626.85 over the lifetime of your loan on that.

Now the same loan ($400k) but at the late 2023 rate of 6.5%, because you wanted to sell your house for that 10% profit, remember? Now the same loan amount will cost you $1,036,344.62 over the lifetime of the loan. The house just got $150k more expensive even though the sticker price on Zillow looks like it has been flat since 2022.

So... still excited about your 10% home value?