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Jim Klinge
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Posted by on Feb 6, 2013 in Boomers, Market Conditions | 10 comments | Print Print

Staying Put

A friend who lives in La Costa Valley called, and demanded an answer.

Why is no one moving?

We had discussed previously why the long-time owners in La Costa Valley (built in the late-1990s) aren’t moving.  They are busy raising families and enjoying low property taxes – plus, where else is any better?

But she drove through old La Costa, which was mostly built in the 1970s, and could only find two for-sale signs there.  What gives?

I think there has been a transformation about how we view our housing.

Primarily it’s because we are older, and have experienced the first big real estate depression in American history.

1.  Older

During the Big Boom of 1997-2004, baby boomers were in their 40s and 50s, and in the prime of their lives.  Not only was employment fantastic, but everyone was getting rich on real estate.  The ambitious folks cashed in their gains every two years and moved up, while others were content knowing that their equity build-up would someday be their retirement nest-egg.

But now the baby boomers are much older – in their 50s and 60s.  Employment is uncertain at best, and the kids are leaving or have left.  There isn’t the want or need for a bigger house.

If there was a reason to move, does anyone over age 50 want to take on a new 30-year mortgage?  Not unless it is a fairly small loan, which means either draining the bank account, or leaving town – neither of which is very comfortable for long-timers.

Though it was in our DNA to constantly be moving, we have gotten to the age where it isn’t easy to move, and rarely makes sense.

2.  First Real Estate Depression

Our belief that “real estate always goes up” has been shattered.

People never thought much about prices going down (the early-1990s are forgotten), but now we have been rattled by the reality.  With all of the other uncertainty in the world, we have come to appreciate what we have, and are satisfied that it is enough.

Those who are ‘underwater’ and other debt slaves aren’t beholden to their home – for the last 5+ years they have had a free pass to walk scot-free, and not many have done it (there were 356 short sales last year in NSDCC, or 11% of the total sales).

The same prognosticators who predicted that there would be a tsunami of underwater liquidations now believe there will be a new flood of sales by the same underwater folks once they regain some equity.  No way.

They have endured the toughest financial battle of their lives by waiting it out, and now they are going to bail?  Besides, where are they going to move?

They are staying put, and appreciating what they have even more.

With Prop 13 providing the benefit of passing down the old property-tax basis from parents to kids, the lack of inventory should continue.  Home sellers will be those who NEED to sell, and apparently there aren’t many of those today.


  1. Barry Ritholz referenced how tighter credit has contributed to lower inventory, and it conforms to our thinking.

    Essentially, most existing homeowners don’t have good enough credit, income or equity to warrant a move, either up or down. For those that do, the lack of decent inventory and prospect of bidding against other buyers & investors makes staying put easier.


  2. Common myth that credit is tighter, but its mis-conception could be affecting people’s decisions. The self-employed who bought a house with no-doc financing do have a choice – they can stop cheating on their taxes so they qualify like everyone else. But agreed, when deciding between paying more taxes or staying put……

    I hate the label of “tighter credit”.

    We had credit standards, then we didn’t, and now we do. They are the exact same credit standards as when I got into the business in 1984.

    The no-credit era was possible because Mozilo found suckers on Wall Street who didn’t know what they were buying and believed his lies. Now they are paying for it, with help from the taxpayers to smooth it over.


  3. Yeah, credit standards are now about the same as they were in the mid- to late-90s. The lo-doc/no-doc/NINJA insanity was really a 2000 to 2007 (aberration) phenomenon. Anyone with decent credit, a 20% down payment and documented income can get a residential loan these days – not what I would describe as tight from a longer-term historical perspective; only tight in the context of the fog-a-mirror standards during the bubble years.


  4. “With all of the other uncertainty in the world, we have come to appreciate what we have, and are satisfied that it is enough.”

    That’s all lovely and everything, but I really think it is the stubbornness of people to not sell for less than they paid. So, the “housing depression” is the reason, but only because it dropped current prices below the prices that people paid for homes they now live in. This, combined with the free ride that so many people have gotten means that nobody is selling. Why sell when you don’t have to pay the mortgage ?

    When many properties are both underwater and distressed, that’s when the inventory comes. However, we only have “underwater” now with out the distress – a unique situation brought about by all the efforts to prop up prices.

    I still think this will all come home to roost someday and the free riders will end up putting those homes on the market somehow. But the can seems to have been kicked pretty far down the road.

    I don’t think tight credit has anything to do with this market. Low rates and unmotivated sellers are the drivers.


  5. I’m with you, Jim… this isn’t “tight” credit, it’s pretty close to historically normal.

    I’d suggest pre-bubble was a *bit* stricter regarding skin in the game, because you didn’t have the government funding jumbos, let alone as low as 5% down.


  6. Can’t speak for old La Costa, but we live in La Costa Valley and here is my take:
    -kids are in school at ECC and love it. They have great friends, parental involvement at the school is high, teachers have been mostly decent, they are involved in all kinds of sports, etc.
    -there are 18 kids in our culdesac. Afternoons are spent playing mostly outside with little supervision. Parents are present and attentive but not psycho. We used to get together for neighbor bques more but are happy with just a couple times a year now.
    -Our house is reasonably well built and is not falling apart. We moved here in 2003 and it is worth more than we paid for it. We are close to everything you could want and are fine with the amount of space and amenities we have (we are high users of the community facilities; HOA $110 a month).
    I think we will be staying put until the kids are out of high school. I am not sure we could do any better without spending a lot more money. Would guess most though not all of our neighbors are in the same position…


  7. Thanks LCV Res! In line with my observations, and the allure must be powerful enough that those who are underwater or distressed keep finding a way to stay.


  8. Credit isn’t tighter…. there is so much money in the market looking for a place to go it isn’t funny. How else do you explain the stock market? Investor “value”? Please….

    In my case (which is all I can describe with reasonable certainty), I’ve long ago come to the conclusion that I do not need to own everything I see. Once your possessions take control of your life, they own you – not you them. I’ve dumped most of my abundance on other unsuspecting souls who have yet to learn that lesson. No need to move up as my ego is satiated.

    The “underwater” comment? Seriously? Does sdduuuude think every homeowner bought during the bubble? Hardly. Look at the number of homes owned outright. Look at the “granny” homes now coming on the market. Look at people like me (in my 50’s) that own outright because we never sucked the equity out of our house to fund a bass boat or vacation to Fiji.

    I have no compelling reason to sell. While my house may be too big for me (2 people in 3,000 sq. ft – kids long gone), there is no motivation to downsize. This house is comfortable and in much better condition than what I would likely find elsewhere (even next door) for comparable money. For the cost of selling and moving (@ $100,000), I can stay here, knock half of it down and rebuild it – and likely be money ahead.

    Once I retire, it may be a different story. Most of my neighbors of comparable age already have plans to leave. Aging in place is not an option as I/we don’t want to be climbing stairs in my/our 70’s. One couple is building a ranch style home on a lake near Austin, TX. They are business owners and will ultimately sell their business, sell their CA properties, and move to a less tax intense area. Another is looking forward to moving back to the right coast to be near family when her sons finally “launch”. We are of a similar mind – just not sure of the destination. We all own these barns outright, so there’s no financial pressure to do anything – so we will sell when the time is right for us… not on the schedule of some frustrated buyer.


  9. I noted the same phenomena occurring in the OC when prices dropped in the mid 90s during the aerospace depression. Houses I wanted to get into just didn’t come on the market until the market values increased to something like they were prior to the drop. This was very aggravating to me as a buyer but that’s the breaks.



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