It's no secret that our area is in the midst of a housing crisis... there just aren't enough available properties to satisfy the growing number of people who want to live here. At the date of this newsletter, there are 144 homes available for sale in our local market, representing just a few weeks of inventory; a healthy level would be somewhere between a 3 and 6 month supply. Yet, demographic trends alone cannot fully explain the extent of our housing shortage... there is more going on here.
First,
the move up market is in a deep freeze
. Even if a homeowner has the desire and ability to move-up to a larger home, there is a good chance he or she would have difficulty getting a home into contract. Competition for available homes in our area at nearly all price levels remains intense, almost always consisting of non-contingent offers substantially higher than the list price. Faced with the uncertainty of finding a move-up property, many homeowners are opting to improve their existing residences to suit their evolving needs. To give you a sense of how much inertia exists, every one of my five listings during the 1st quarter were for homeowners moving out of the area.
Second,
underwriting standards have made it more difficult to finance the purchase of a new property prior to selling an existing one
. This more conservative environment creates a barrier for many homeowners who would prefer to sell after they find a replacement.
Third,
homeowners are suffering from property tax "sticker shock"
. As a result of Proposition 13, property taxes are assessed on the purchase price plus an annual increase for inflation. For many homeowners, this assessed value is far lower than the market value of their home today. A move to a new property at current prices would likely result in a significant jump in taxes. Although there are limited opportunities to avoid this step-up (contact me for more information), the potential increase in property taxes prevents would-be sellers from making a move.
Finally, there is the
potential for capital gains taxes on proceeds from the sale of homes that have appreciated significantly
. This tax haircut reduces the funds that would otherwise be available to invest in a new home. Although many would argue that this is a nice problem to have, it causes homeowners with gains in excess of the limits to take a harder look at whether it makes sense to move.
The good news is that we all live in one of the most desirable locations in the country and our real estate values have shown remarkable strength over the long run. My advice to weary buyers and would-be sellers is that you should be prepared for the right opportunity, develop a relationship with a Realtor that is well connected to your local market and be open to considering new areas and neighborhoods. The real estate market has and will continue to be cyclical and your best time for that fabulous purchase or sale may be when you are least expecting it.