More plain talk from Steve about home prices and future appreciation rates. He is talking to realtors.
What I sent to Steve:
Hi Steve,
I enjoyed your deep dive today and also put it on my blog where local realtors are known to hang out.
You mentioned that you are studying the locked-in effect.
I don’t think it has the effect people think it does, and I’m not sure there is any effect.
Why?
- The extreme difficulty of finding a superior home.
- The extreme difficulty of winning a superior home, once you find one.
- Paying capital-gains taxes on the sale of the previous home – and usually six-figures of taxes.
- Higher property taxes for most, even in California.
- Start the 30 years over again on the mortgage – which those extra years should be a bigger hurdle than the higher rate for those who analyze the differences in costs.
- Then pack up the stuff and uproot everybody and everything from the previous house to start fresh in the new place….and hurry up with the $25,000 to $50,000 in repairs and improvements that literally every buyer has to do when buying a resale home.
We will only know if there is a locked-in effect if rates plunge to 3% again, which is very unlikely. So it’s all just fodder for the twitterverse.
But if rates did plunge – even to 4% – then we’ll find out that homeowners are still reluctant to move.
Then the problem will be re-labeled as the Forever-Home Effect.
Just my 2 cents!
“Stucco? Oh boy can you get stucco!” First heard on these pages in the mid 2000’s under different circumstances.
Innovative California communities would institute “make you move” incentives. Share the bounty of existing $4k/yr property taxes going to $25k/yr should be worth six digits up front or $20k/yr for 6+ years.
Thinking about just my primary residence it would take a whole lot more than that.
I like this guy but he’s definitely one sided in his viewpoint and perspective.
He spends a lot of time looking though the data + justifying why XYZ Real Estate is going to go up or is not a bad buy because of 123.
I understand he’s catering to the audience. But Realtors make money selling houses when values are going up and when they’re going down.
Technically it shouldn’t matter if the market is up or down as long as people are buying and selling properties and using a Realtor to facilitate.
Rob_Dawg – what are you talking about?
California is loaded with Proposition 13 homeowners who have protected low property tax rates. A two million dollar house could be paying “only” $4k/yr. Upon arms length resale the property taxes could go to $24,000/yr. Why not bribe residents to sell?
The realtors were the driving force behind the last proposition that tried to incentivize homeowners to move and take their old property-tax basis with them.
But the capital-gains tax is a bigger hurdle.
If there are any politicians that want to straighten out the housing market, the best answer is to change the capital-gains taxes. Just going from the $500,000 exclusion to $1,000,000 might be enough!
Having multiple rental properties in California I’m officially without main home. Just sighed a lease at One Paseo 2 br for $4K happy as a clam despite haven’t rented in 15 years
I’m in my forever home. Have lived here for 35 years and they will have to carry me out feet first.
The capital gains tax would panel beat me if I sold so it’s home equity loans if I need cash.
Far better death duties than a similar amount in capital gains tax still followed by death duties on the replacement residence.