Real Estate’s New Normal

As I have reported for the past few months now, there is a major shortage of available homes on the market.

There are three main reasons for the lack of inventory over the past five years, all of which seem intractable.

First, baby boomers aren’t moving at the rate they were previously. According to an AARP survey, 87% of baby boomers over the age of 65 intend to remain in their homes. The main reason is to be near family and friends. Another reason is to avoid excess capital gains taxes. Selling a personal residence allows for a $500K exemption- if married or a $250K exemption if single.  Any realized gains over those amounts are taxed as capital gains. There are a few ways around this, most of which involve setting up trusts. That is something you would need to discuss with your attorney and/or accountant. Please let me know if you need a referral to a good attorney or accountant.

Another factor impacting the current shortage of available homes is due to the fact a few years back, when there was a huge number of foreclosures, many of these homes were purchased ‘in bulk—directly from the banks- bought by hedge funds and big private-equity groups. Rather than flipping the homes, they rented them out to the families who had been foreclosed upon-in an effort to keep them in their local community-AND to NOT sell them at the bottom of the market.

Frank Nothaft an economist with Corelogic, says in 2006 there were nine million single family houses in in the rental stock. That number increased by three million in the following seven years, he said.

As a result, there were many fewer homes for sale, which helped drive up prices in markets around the country; especially here in Southern California.

There is, as yet, no sign these investors will be putting those properties back on the market.

The third main reason for low inventory is builders aren’t building.

Home builders say its new regulations that are holding them back from filling the void. CNBC reports that such regulations may cost builders up to a quarter of the price of a new home, and a recent National Association of Home Builders study found regulatory costs have increased 29 percent in the past five years. The builders also say labor shortages are holding them back.

Finally, prices for land and materials are rising and there is a lack of finished lots in neighborhoods where people want to live. These price constraints create an incentive for builders to construct fewer and more expensive homes, because under such high demand, they can fetch higher prices for each home they do sell, CNBC reports.

There you have it. The new normal: low inventory resulting in multiple offers and rising prices.

With prices near all-time record-breaking levels you may have a lot more equity in your home than you realize. In fact, most of our clients are surprised to learn how much their home is worth. If you would like me to provide you with an accurate home evaluation-a lot more accurate than you will find on Zillow or other similar sites-please feel free to contact me anytime even if you have no intentions of selling, and are just curious, I am happy to provide you with this info.

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