People Staying In Homes Much Longer - Creates Inventory Shortage

People Staying In Homes Much Longer – Creates Inventory Shortage

By Jay Voorhees

November 7, 2019 3 min read

People Staying In Homes Much Longer - Creates Inventory Shortage

“Fewer homes for sale is a big reason why even ultralow mortgage rates, record levels of home equity and a strong job market haven’t jump-started the sluggish housing market.”

The above quote is from this recent WSJ article – People Are Staying In Their Homes Longer – A Big Reason for Slower Sales (we can send key excerpts to non-subscribers if requested).

According to the article, homeowners are now staying put for an average of 13 years, or 5 years longer than they stayed as recently as 2010.

This of course puts a huge damper on inventory levels.

Below are several reasons why people remain in their homes longer now:

Baby boomers are living longer and are much healthier. B/c of this, baby boomer-homeowners are less likely to downsize as soon as they would have in years past.
Property tax exemptions. Many homeowners have special property tax exemptions that they cannot take with them when they move, so they stay put in order to preserve them.
Too expensive to move up. Many homeowners who bought years ago and now want to move up cannot afford to do so b/c there has been so much appreciation in the housing market.
Don’t want to give up low rate. This was not mentioned in the article and it is not as much of a factor now, but it was a significant factor last year when rates were much higher. Many homeowners with very low fixed rates (in the low 3% range) do not want to give them up. And moving when rates are higher forces them to give up their low rates.
Capital gains taxes. This is a much bigger factor than most people realize. The WSJ article uses a Danville, CA couple as an example. They bought their home in 1987 for $440,000 and it is now worth $1.8 million. If they sold, they would have to pay capital gains against almost $1 million of capital gains (after their exemption).

This is an even bigger factor for investors. I recently blogged about my nephew renting a $2 million home for $4,250 per month in San Francisco. That works out to less than a 2.5% return against a $2 million asset. I realize that is over-simplified, as there is much more that goes into a full real estate investment analysis (appreciation, cash out of pocket, debt service, maintenance, depreciation, taxes, etc.) but there are millions of landlords across the country who are sitting on poorly performing properties solely to avoid capital gains taxes. We see this constantly when we are pre-approving borrowers.