Archive for March, 2018

Possible End to Housing Shortage in CA?

Tuesday, March 27th, 2018

There is a new voter measure that could put an end to the housing shortage in California if placed on the November voting ballot and passed. The proposition would allow homeowners 55 and older to reap tax benefits upon selling their homes by eliminating the “disincentive” to sell, and making it possible to move to other California counties while taking the tax benefits with them.

Here is how the proposal would work: older homeowners who want to sell their larger homes and downsize would be able to do so, while being allowed to move from any county in CA to another without a big tax hit, so long as the new property value is the same or less than the home they are selling.

This may sound familiar to you – it draws on the premise of Proposition 13, and this new measure would allow the sellers to retain their benefits under that law. Currently many would be downsizers have elected to stay in their larger homes in order to prevent higher tax liability by losing their Prop 13 status upon selling.

Prop 13 allows property taxes to be capped at 1% of the purchase value of the property, and they are normally limited to 2% annual increases so long as the homeowners stay in the home. Sale of the home results in a reassessment of the property value for the new purchasers – thus the reason many would-be sellers have decided to stay put.

Currently, homeowners who want to downsize and move to different counties, say to be closer to family or save money on living expenses, may opt NOT to sell for the reasons above. This creates a problem for current homebuyers, as inventory remains very low. This drives up prices and encourages multiple offer situations – not good news for buyers as they may get priced out of markets, especially with interest rates and prices increasing simultaneously.

Both the California Association of Realtors and California Chamber of Commerce support this measure, as it is seen as one way to ease the housing problem in the state by increasing availability of “modest-priced homes and move up housing for young families.” Many counties in California oppose these inter-county tax transfers, as they could reduce revenues collected in property taxes upon the sale of homes.

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Will Increased Interest Rates Affect the Housing Market?

Wednesday, March 14th, 2018

The reality of rising mortgage rates is of concern to home buyers and sellers. Normally interest rate increases alone would not be much of a concern but combined with continued low inventory and high prices many wonder if the housing market will be able to sustain itself; there are 3 – 4 expected rate increases remaining this year.

I feel it is safe to say that rising interest rates will have an effect on housing affordability and inventory. Here is how I see it:

1. Higher rates mean many buyers will not be able to afford the house they could afford today (if inventory was not an issue). Many people, especially the would-be first time home buyers, may choose to continue renting or live with parents. If there is less demand for the homes that are on the market, prices will drop.

2. Sellers may continue to withhold homes from the market for the same reason – if there is no inventory for them to move either up or down, selling may not make sense. Especially when you take into consideration the higher rates, plus property tax increases for move up buyers. With less homes hitting the market we will continue to see inventory shortages, BUT combined with higher rates, which could lead to lower demand, prices should start to come down.

3. Luxury markets will face even tougher challenges as rates rise. Combined with the new tax laws, which raise tax on purchases for loans over $750,000, many potential luxury buyers may decide to hold off. Luxury sellers will likely see longer market times and lower prices.

It is important to keep in mind that every market is different. Here in San Diego we have year-round desirable inventory due to weather and location – but the coming changes will affect us and could alter the second/vacation home market purchases as well. It is important to consult a local area real estate agent to understand what is going on in your specific area.

If the inventory rut continues on this path it could lead to a big problem in the real estate market. I feel, and many economists and real estate market watchers agree, that it will stall purchases, keep sellers in homes they would have otherwise sold, and have a deep effect on buyers currently in the market and future buyers. As we head into the Spring and Summer it is a good time to think about selling and purchasing, prior to further rate increases.

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