Where Are the Homes For Sale?
Updated: Apr 1, 2022
How can it be that despite rising interest rates, global uncertainty and the possibility of a recession, housing prices in our neighborhoods continue to skyrocket to new highs? As economists, statisticians and soothsayers try to predict how things will play out and begin to talk about slowing sales, I can tell you that the level of prices in our area reflects one thing … there simply is no supply. According to a recent report from Redfin, as of 2021 the typical homeowner has spent 13.2 years in their house. A decade ago, that figure was 10.1 years. In our area where there are so few single-family homes under construction, this trend has a dramatic impact. To better identify the drivers that may move the needle on available housing in the future, it’s worth a deeper dive to understand why homeowners are moving less than ever before.
Aging in place – Healthier and longer lifespans mean more time in the family home. According to statistics from the U.S. Census Bureau, the median age of the house holder has steadily increased to 52.1 years in 2021, up 4% from 50.2 a decade ago. As the massive baby boomer generation chooses to age in place at greater numbers, this trend should continue. In addition, people are choosing to live alone more than ever before. When I started in this business, single person households accounted for roughly 25% of the housing stock. Today, that number is closing in on 35%. Increasing age and household size are impacting moving decisions less and less.
Taxes – California rewards homeowners who remain in their homes through Proposition 13, a property tax ceiling based on the original purchase price. Despite soaring home values, property taxes are kept artificially low, effectively disincentivizing homeowners to move. Although recent legislative changes have made it possible for seniors to transfer their property tax basis to a new property to encourage more housing turnover, these changes remain largely misunderstood by the general public. In addition, long term homeowners face the increasing potential for higher federal and state income taxes upon a sale. Whether perceived or actual, the threat of negative tax consequences dampens the enthusiasm to move.
Interest rates – Current homeowners have benefitted from some of the lowest mortgage rates in history. Many have secured 30-year loans at rates so low that they may never be seen again. A new purchase would need to be financed at higher rates, increasing the cost of ownership. Current borrowers are understandably hesitant to part with cheap money. With six or more interest rate hikes expected this year alone, the uncertainty over the timing of when a new home will be identified is an unsettling process.
Fear – Another reason for people staying put is the fear of the unknown. No one wants to find themself on the losing end of a bidding war once they’ve sold their current residence. Conversely, the fear of overpaying if you are the winning bid is also a consideration. And then there are the questions related to a new home… What if it needs unanticipated repair? Will I be able to find an available qualified professional? What will it cost? How soon can it get done? In an environment where nearly every home is purchased in competition and with no contingencies of any kind, buyers bear the burden of many unknowns. Fear breeds inertia.
So, when I see recent news articles titled “Pending Home Sales Sink in February, Setting a Grim Tone for Spring Season” or “Mortgage Applications Plunge as Interest Rates Surge”, I can’t help but scratch my head. We have a supply issue, not a demand problem. In my view, relief for potential buyers will only come when more homeowners decide that price levels are too hard to ignore or that the potential benefits of relocating outweigh the risks of the unknown. With the spring market just beginning, I am starting to see more inventory trickling into the market, especially at the higher price points. Home stagers are booked out until June, a positive leading indicator for new listings in late spring. And at last, conversations about the true financial implications of relocating are happening with greater frequency. If you have been on the fence about a move, this may be an opportune time to begin a dialogue with your real estate and financial advisors. And for those of you who have grown weary of being outbid, it may be time to dust off your financing package in preparation for greater selection in the months ahead.
If I can be of any assistance in your journey, please don’t hesitate to contact me.