Ask any real estate agent how the market is and the likely answer you will receive is that there is not enough inventory of homes for sale. It is the case nationally, and also right here in Marin County.
The ingredients of a hot seller’s market are all here: homes being snapped up for up to 20-30 percent over the asking price in the lower price ranges, all cash offers, multiple bids, and an abundance of very eager buyers. It is tempting for many sellers, and yet, a great number of them struggle with the decision, wondering where they will go next. The general advice has always been to sell before you buy, but nowadays it can be too scary for sellers. Many are not aware that there are ways to mitigate the risk such as negotiating a rent back from your home’s buyers or getting a bridge loan. A good Realtor can advise you as to the best strategy based on your particular circumstances and ensure that you have a viable plan for selling and buying from day one.
If you are ready to move up, but worried about entering our competitive, cut-throat buyers’ market, I would be happy to sit down with you and go over your options. I have helped sellers successfully sell and then buy, and buyers win in multiple offer situations even when their offer was not the highest priced.
While the quandary about where to go next is the one I hear most from sellers, there are also nine other reasons why we have so few homes on the market.
It was in the second half of 2011 that we began to see inventory levels decline both nationally and locally in Marin County, as clearly illustrated by the charts below.
And things have not improved since then! Let me explain why.
Homeowners have historically moved on average every seven years, yet according to the National Association of Realtors, that time frame has increased to ten years in 2014. People typically move and buy and/or sell their home when they start a family, outgrow their home when they have more children, get a promotion and can afford a larger home, get a job out of the area, get divorced, become empty nesters, lose their spouse…So why are they staying put today? What is it that makes them postpone the sale of their home even when these trigger events occur?
As noted in a recent article published by Inman News, “there are numerous conditions that have contributed to this phenomenon and bundled together have created an inventory control dynamic that, as prices rise, only serves to limit the number of homes available for sale.” In other words, the problem is self perpetuating.
The Bay Area Booming Economy:
The growing and booming economies of San Francisco and Silicon Valley, a record-low unemployment rate and an ever-increasing influx of newcomers to the Bay Area have been stimulating demand for housing in Marin County and the Bay Area in general. Prices in San Francisco have skyrocketed in the past few years and, as a result, Marin has seen even more (first time) home buyers than usual flock to its shores in their search for more affordable housing. Of course, it is all relative when you consider that Marin prices are amongst the highest in the country.
Marin’s No Growth Policy:
In today ‘s high demand environment, the lack of housing inventory is exacerbated by Marin’s no growth policy. Marin has approximately 250,000 people living on 519 square miles, or 475 people per square mile. With eighty percent of Marin earmarked as preserved open space and its low or no growth policy, there is so little buildable land that people who want new construction often buy a fixer in a prime location, tear it down and build their brand new dream home on the lot. There is practically no new development here, and as a result our median home price is close to $1 million.
Fewer Distressed Properties:
During the recession, about 25 percent of the inventory of homes for sale in Marin County was short sales and foreclosures as homeowners with delinquent mortgages were forced to sell by their lender. Now this pipeline of distressed properties has dried up as fewer people are behind on their mortgage. The nationwide delinquency rate is actually the lowest it has been in eight years and has gone down to below five percent in March 2015. The delinquency rate is defined as the percentage of residential mortgage loans 30 days or more past due but not in foreclosure.
I have met a number of sellers who had to postpone basic home repairs during the recession and are just catching up now with that delayed maintenance. These sellers are postponing the sale of their home until they feel their home is in saleable condition. Others are postponing the sale of their property until they have the budget to update their home to maximize its resale value, and they are just now starting to make those updates.
Waiting for values to continue climbing:
Some homeowners believe that home values will continue to rise and have decided to wait. They are willing to bet that the increases will continue, allowing them to sell later at a higher price. Home values have risen 25 percent over the past three years in Marin and have almost gone back to the 2007 peak levels. Prices are continuing to increase as a result of the low inventory and competitive bidding. Some sellers want to regain more of their lost equity, or if they bought during the boom years for a high price, they just want to wait for their home values to continue increasing beyond what they paid for it before they sell. How long will prices continue increasing? Probably until demand continues to greatly outpace supply and buyers start pushing back.
For some sellers in the high end, let’s say in the $2 million to $3 million price range, there is some apprehension about tying up more of their net worth in a larger, more luxurious home after witnessing the decline in values during the recession.
Value disruption/reset in 08/09:
For those sellers who bought during the recession years at significant discounts (in Marin up to 20-30% discount,) there is no incentive to sell. A lot of these homeowners are remodeling and/or expanding their homes, but selling does not make sense for them. In addition, an unprecedented number of institutional investors purchased large numbers of properties, beating first time home buyers with their all cash offers, and are holding that inventory, earning good returns on their investments thanks to sky-rocketing rental prices.
Capital gains exclusion on primary residence:
The Taxpayer Relief Act of 1997 permanently exempts from taxation the capital gains on the sale of a personal residence of up to $500,000 for married couples filing jointly and $250,000 for singles. This exemption applies to residences the taxpayer(s) lived in for at least two years over the last five and can only be claimed every two years. Until now, the Act served its intended purpose of saving a lot of money to millions of homeowners. However, with the recent huge swings in property values–especially since 2000–, the capital gains on many homeowners’ existing homes exceed the $250K/$500K maximum, creating an unwanted tax burden and a strong deterrent to sell their home. Click here to see the increase in the Marin County Average Home Sale Price from 1965 to 2014.
The current law does not create the compelling motivation for individuals to continually move up into “bigger and better” higher-priced properties, especially in areas like Marin County. Move-up buyers who have owned their homes for a number of years are not willing to swallow that big tax pill in order to move up to a larger home to the tune of 23.8% federal and 13.3% state tax in California, or a total of 37.1% tax on the incremental gains!
Stepped Up Basis
The general rule applied to inherited assets is that they are automatically revalued to their fair market value, or “stepped-up” basis at the time of death. This tax provision provides an incentive for taxpayers to retain appreciated property until death. For older couples who have owned their Marin County home together for an extended period of time, waiting for the other spouse to pass away before selling the property can be one way to avoid paying these large capital gains. For example, a Marin County couple owns a home they originally purchased for $600,000; their base year value in the home is $600,000 plus the two percent annual adjustment under Proposition 13 and any adjustment after a major remodel or expansion. On the day one of the spouses passes away, the fair market value of the property is $1,800,000 and the new “stepped-up basis” for the surviving spouse is $1,800,000.
It is very likely that a good percentage of longtime married homeowners in the higher-priced areas of the U.S., like Marin County, are aware of this dynamic and are choosing to stay put and wait, surprisingly to some, for one or the other to pass away before a move makes practical financial sense. Please check with your tax professional to determine your current tax situation.
Increased Property Tax Liability
Property taxes in Marin County are on average equal to 1.25% of the base year value, or assessed value (i.e. the price you paid for your home when you bought it, or the adjusted value after Proposition 13 and remodels/room additions adjustments) of your property, paid annually in two installments. What happens when you sell? You pay property taxes on the base year value of your new property. or people who have owned their property for a long time, that could mean a walloping increase in their tax liability.
For homeowners over 55, Propositions 60 and 90 allow for a transfer of their base year value within the county or a few other states in California, respectively. The replacement property must be of equal or lesser “current market value” than the original property. This is however a one-time only benefit: once you have filed and received this tax relief, neither you nor your spouse who resides with you can ever file again, even upon your spouse’s death or if the two of you divorce. I have a couple of clients who are in this situation and for whom the increase in tax liability is an important factor in their decision to sell or not to sell.
Where would I go? Move up or down
We have a strong case of the chicken and the egg, as the aforementioned forces feed on each other and further reduce the move-up or down-size opportunities. Lower inventory begets lower inventory. As discussed earlier, many sellers in Marin County worry about not being able to find properties to move up to, and even more to down-size to, and decide not to sell their current homes.
Are you thinking of selling your home and wondering whether now is the right time? I would be happy to sit down with you to discuss your particular situation, provide you with an estimate of your home’s value today, and help you formulate a viable plan. Feel free to contact me at 415-505-4789 or Sylvie@YourPieceofMarin.com.
About the Author: The above article about 10 Reasons for Low Housing Inventory in Marin County was written by Sylvie Zolezzi. I am an award winning Realtor specializing in luxury residential real estate in beautiful Marin County, just north of the Golden Gate Bridge.
I offer a wide range of innovative and comprehensive real estate solutions for buyers, sellers and investors, attracting clients who demand excellence—in marketing, negotiations, market knowledge—and a genuine concern for their needs. My association with Decker Bullock Sotheby’s International Realty allows me to provide a high-end luxury experience to all my clients at every single price point. It also empowers me to leverage the unique combination of Sotheby’s global resources, Decker Bullock Sotheby’s International Realty’s growing market share and local knowledge with my unmatched social media networks to provide highly personalized service and unmatched exposure to my clients’ properties locally and worldwide.
I would welcome the opportunity to show you how I consistently get outstanding Real Estate results for my clients. I can be reached via email at Sylvie@YourPieceOfMarin.com or by phone/text at 415.505.4789.
I sell homes in Sausalito, Tiburon, Belvedere, Mill Valley, Corte Madera, Larkspur,Greenbrae, Kentfield, Ross, San Anselmo, San Rafael, Fairfax, and Novato, with a special focus on Central Marin.