One of the primary questions? How are the kids going to be able to buy a home?
If prices just stay at this level, it will be near impossible for local kids to save the down payment and afford the monthly nut when starter homes are selling for around $1,200,000.
Plus, there is the incentive now for seniors to hang onto the family homestead and then let one of the kids live there so they can keep the old property-tax basis. For kids who never left, they will live in the same home their whole life!
But if you have more than one kid, then what? It used to mean selling the family homestead and dividing up the loot, but today’s heirs probably own their current home too. Tomorrow’s heirs? Not so sure, which means more homes will stay in the family when the parents die, and fewer homes will be coming to market.
The tight inventory could get worse.
Because the majority of homes being purchased today are ‘forever’ homes and will be owner-occupied for generations, it narrows down the list of probable sellers to those who have owned their home for longer than 12 years, AND are selling for one of the Big Three reasons (death, divorce, and job transfer).
And the baby boomers are going to decide the outcome.
Baby boomers are:
Still relatively young, and living longer than ever.
Aging-in-Place, rather than pay the imposing tax penalty for selling before you die.
Hoping a kid will inherit the house and live in it.
There may be a boomer-liquidation surge in the future, but it will be at least 5-10 years before it could happen on a larger scale. In the meantime, seniors will live comfortably in their old family homesteads, and probably be joined by as many kids as can fit.
The seniors who do move will be from these categories:
Those buying a one-story house.
Those buying a multi-gen house so kids can help with senior care.
Those moving to assisted living.
Those who will rent, at least for now.
Some may have to move out-of-town, but at least their pockets will be full of cash.
Once they take care of themselves, boomers are going to focus on their kids – many of whom are still hanging around the house!
It means the entry-level markets will be full of younger buyers backed by affluent parents and grandparents – and they are loaded. There is also the multi-gen buyers who are looking for larger homes that will suit the whole family – or they will buy the one-story home for the folks, and then leave the old house for the kids.
There really should be an extra premium available for those home types when they sell, given the demand. If you are going to sell one of those (entry-level, multi-gen, or one-story), then list your home with me, and I’ll make sure you get all you deserve!
In San Diego County, the excessive frenzy conditions have been driven by newcomers who don’t have a house here yet, and who figure that they just have to pay what it takes to get one.
It is those buyers that out-bid the locals. As those numbers dwindle, the frenzy will subside:
News reports, anecdotes, and preliminary research have speculated about whether there has been an exodus from California during the COVID-19 pandemic. The implications of population changes, such as federal representation and federal funding allocations, are significant.
This policy brief uses the University of California Consumer Credit Panel (UC-CCP), a dataset containing residential locations for all Californians with credit history, to track domestic residential moves into and out of California at a quarterly frequency through the end of September 2021. This brief updates our spring 2021 analysis that used data through December 2020.
The less equity you have, the more likely you will move.
Q: I guess it may be too late, but figured I’d ask. We did a reverse mortgage. We got almost no cash out of it, but it is eating up whatever equity remains with our loan that has an effective interest rate of almost 5 percent. Is there anything we can do? Thank you.
A: Reverse mortgages have been around for more than 20 years. The concept is enticing: If you’re over age 62 and you have equity in your home, there are a number of lenders who will give you a loan for a certain percentage of available equity (often up to 85 percent, but sometimes quite a bit less). The loan provides you with cash and no requirement to repay the loan until the home is sold or the owners pass away.
If you’re house rich and cash poor, and want to stay in your home but perhaps need funds to make repairs, pay off the mortgage to lower your cash burn or even augment your retirement income, a reverse mortgage can help. But it comes at a fairly steep price: a higher interest rate plus higher fees.
The higher fees eat away at the amount of cash you’ll get. The higher interest rate eats away at your remaining equity. And you still have the requirement to pay your real estate property taxes and homeowners insurance premiums.
It sounds like you needed cash, maybe didn’t qualify for a home equity line of credit and turned to a reverse mortgage as a way to secure the funds you required. The problem is the one you now face: You had a home without much in the way of equity, took what you could, and now have run through the cash and are out of options to get more.
It’s an unfortunate position to be in if returning to work is no longer an option or a possibility. When we get asked about reverse mortgages, we’ll often recommend that homeowners sell the property, take whatever equity they can and rent something that’s affordable. Or, better yet, move in with family or into some sort of shared living arrangement to cut costs.
Do a thorough investigation on where you’re moving!
To Rick Brown and Jeanne Brown, finding a forever home has seemingly taken forever.
In just five years, the couple—he’s 71 and she’s 72—bought or built two different houses that they planned to live in for the rest of their lives. But their tastes changed—so they decided to pick up stakes both times. Now they have settled on a third home that seems to be their final choice.
If there is one takeaway, Mr. Brown says, never use the words “forever home.”
Like the Browns, many couples near or in retirement embark on a quest to find the perfect place to spend their twilight years. Soon, however, some people realize that what’s perfect now may be less than ideal later. Poor health and dwindling finances are obvious reasons some seniors choose to move. Other retirees retool their priorities when they realize how much they miss the grandchildren or hate their new neighborhood.
In truth, most home buyers don’t stay in their homes as long as they think they will, says Jessica Lautz, vice president of demographics and behavioral insights with the National Association of Realtors, a trade group. “People may not want to move,” she says, “but they may decide to because life happens.”
The Browns began their forever-home quest in 2011, when they sold a bed-and-breakfast in Annapolis, Md., that Mrs. Brown had operated since 1997. Cash flow had been good for a while, but in time, neighbors started listing their homes as vacation rentals, cutting into the B&B business. Then came the 2007-09 recession. When Mr. Brown retired from his full-time career in banking in 2010, the couple decided to close their business. They sold their B&B—purchased for $540,000 in 1996—for $925,000.
The Browns found their first forever home in Southport, N.C., near the Intracoastal Waterway. They paid about $200,000 for land and another $400,000 to build “the nicest place we have ever lived in,” Mr. Brown says. Still, the nearest big city was Wilmington, N.C., over a half-hour away. “We loved the area and our home there, but it was isolated,” Mr. Brown says. “We were accustomed to good restaurants and the theater, and the like.”
While living in Southport, the Browns traveled west to Asheville, N.C., for a tennis tournament. Driving around, they realized Asheville offered the best of both worlds—the trappings of city life and the outdoor activities in the beautiful Blue Ridge Mountains. So, they sold their Southport home for $480,000 in 2016.
“Where we got clobbered was the purchase price of the lot,” Mr. Brown says, which the couple had purchased right before the recession of 2007-09. “When we left, the value of the lot had fallen about 50%.”
The couple spent about $470,000 to build their second forever home, situated on the side of a mountain about 15 minutes from downtown Asheville. To stay busy, both Browns took part-time jobs, volunteered and pursued their hobbies. “But despite being a nice area, we had a tough time breaking into the social arena,” Mr. Brown says. “I didn’t click with the different types of groups. I thought, ‘Maybe this isn’t the place for us.’ ”
That realization led to their third—and current—forever home. In 2019, the Browns sold their house in Asheville for about $570,000 and moved to the Villages, a sprawling 55-and-older community in central Florida. There, they bought a modest three-bedroom home for $408,000. Mr. Brown plays golf, softball and pickleball; Mrs. Brown golfs, belongs to a book club and teaches pottery classes. Together they foster puppies.
Mr. Brown says he and his wife have no regrets—their experiences in Maryland and North Carolina helped them realize why Florida is such a good fit. To them, an enjoyable retirement is more about the lifestyle and less about the house. “Right now, we’re saying we’re going to stay put.”
Here’s a two-year moving plan for those long-timers who:
Have substantial equity in their home, but
Don’t want to pay any capital-gains tax, and
Want to move out of town – but not sure where, exactly.
This is an adventurous experience, and good for those who are retired and want/need to travel around looking for a new home while seeing more of the world.
Step 1: Rent your house for a year.
Step 2: Go visit/live in your favorite towns. Spend a month in 12 towns, or four months in three towns, etc. This will ensure that you get a good feel for these destinations before buying a home there.
Step 3: Sell your rental house here, and buy a home in your new favorite town via a 1031 exchange.
Your CPA will recommend renting the new home for a year too, so you’ll be a vagabond for 24 months or longer. But you’ve wanted to do more traveling – here’s your chance before setting down for the duration!
To really hit the jackpot, go to an area that is cheap enough that you can buy two – one for a rental too.
For months the talking heads have cited the ultra-low rates, the shortage of new homes being built, stock market, millennials, covid, etc. as reasons why the real estate market has exploded.
Let’s add a few no-so-obvious reasons.
Did we fully recover from the last downturn? We know that because Bernanke and the banks unilaterally changed the rules to rescue the MBS investors, we never hit the true bottom. The short-sales muddied the water further because there were so many that were never exposed to the open market and sold instead at artificially-low prices by unscrupulous realtors. In 2010-2014, we saw it here on the blog where many commenters expected the downturn to last for at least a few more years, and even the Frenzy of 2013 didn’t convince everyone we were out of the woods. Low (but not ultra-low) rates made it interesting, but there wasn’t enough confidence for buyers to flood the streets desperating seeking a home to buy – though in hindsight, they probably wish they did.
The lower-end inventory has been decimated by rental conversions and aging-in-place. Because the rents have exploded, any of those homeowners who didn’t have to sell their existing home had to consider hoarding their prized possession that was probably the best investment they ever made and turn it into a rental instead. The high costs of senior care is causing many if not most to age-in-place, and besides, one of the kids or grandkids can take over and assume the low tax basis. While pricing is flying on the lower-end today, it’s a recent occurrence that the appreciation has been 2% to 3% per month. If there had been more listings in recent years, we would have had prices rising faster, sooner. In the chart above, the rest of the categories look fairly uniform – it’s the lower-end that has changed drastically and having the most impact on the frenzy upstream.
The builders never got the memo about open bidding. Still to this day, it is first-come, first serve. Pardee is down to their last 20-30 houses ever in Carmel Valley, they were taken over by Tri-Pointe, and they have nothing left to lose. You know there has to be 50-100 people waiting on their buyers’ list yet they only release 2-4 homes per phase. Toll Brothers sold two of their models for $4,000,000+, yet Pardee is keeping their production homes attractive priced in the mid-$2,000,000s. If they just opened up the bidding at each release to ALL the buyers on the list, they would pick up an extra $500,000 easily – just because if you are number 50+ on the list, you’re not going to get another chance. But they don’t do it, which is keeping a lid on pricing. Because most everyone is buying their forever home, there won’t be enough turnover in the next few years to generate the momentum needed to find the real top-dollar value.
There are three examples of what has been undercutting the trajectory of home pricing.
When we have BOTH sales and pricing on the rise exponentially like we do now, it demonstrates what is possible when you take off the inhibitors. We are probably running a little hot today – can we be so undervalued that this frenzy could keep going for months or years?
Perhaps – especially if there are new market factors we haven’t considered before!
Zillow is optimistic that we will see more homes being listed for sale:
In prior years, inventory has generally increased in March, and the return to some seasonal normality is a positive sign that the market is reaching a more steady state and could see inventory rise more steadily going forward. With home values skyrocketing, vaccination rates rising, and employees getting long-term guidance on where they can work, we expect an increasing number of homeowners to enter the market and list in coming months. That will come as welcome news to home shoppers enmeshed in bidding wars and watching homes get plucked off the market weeks faster than usual.
But their graph shows an interesting trend. Our inventory had already been dropping since the middle of 2019, and is probably why the beginning of 2020 felt hotter than usual:
If we are nearing two years’ worth of declining inventory, than it wasn’t just a Covid-related event – which means the low-inventory environment will persist after Covid is gone.
If baby-boomers control our destiny and continue to age in place, then it may last for years to come.
But does it impact sales?
Here’s how this month’s numbers compare to the full month of April, 2019:
NSDCC Listings and Sales in April
Number of Listings
Number of Detached-Home Sales
We have already exceeded the number of sales for all of April, 2019 with a few days left to go!
These are the optimal frenzy ingredients of all-time!
If we do see more homes coming on the market, they should all get gobbled up and cause even crazier market conditions as buyers could have a new listing to consider every week, instead of every month. It might even put a dent in the pricing trend that has been going straight up:
The author first explored this topic in 2015, and this follow-up article was published in February:
Welcome to the Brave New Housing Cycle: Factors indicate that an extended housing boom is underway.
A new long-term housing boom is upon us. And COVID-19 is the main reason why.
Both housing and economic cycles used to last five to seven years, but the economy has shifted to longer cycles, due to factors such as technology and monetary policy. The housing market has followed suit and the result is what I have defined as the Brave New Housing Cycle, which is poised to last seven to 10 years.
The current Brave New Housing Cycle actually started last year.
The multi-gen home will be a very popular choice for many. From cnbc.com – an excerpt:
Things have changed in the last few years, however, and a new trend has emerged. Rather than downsizing or right-sizing, retirees are starting to upsize. They are moving to bigger homes in their golden years.
According to a recent Merrill Lynch/Age Wave study of more than 3,600 respondents, 49% of retirees didn’t downsize in their last move, and 30% actually ended up moving into larger homes.
And they are doing it for all sorts of reasons — from finding a home that better suits them to buying a home with room for a live-in parent or visiting family members.
According to a recent Del Webb survey conducted among 50- to 60-year-olds, 22% are looking to move to bigger homes. The study also found that 43% want to remain in their existing home or move to a new location with comparable space.
This change marks the first time such a significant majority of retirees have gone against real estate norms.
Let’s take a look at the reasons behind this culture shift and the financial considerations that come into play if you intend to upsize your home.
The latest from Altos data @mikesimonsen: financial markets are correcting dramatically + #mortgagerates are at their highest in 2 yrs. How quickly will this impact #homebuying decisions?: https://hubs.ly/Q012SS230
Jim the Realtor is legit - I interviewed three brokers; he said list price should be $100,000 higher than the other two brokers; listed it with him and had all cash (no financing) offer in two days, five day contingency period, closing in two weeks - and it closed at his recommended list price. I could not recommend anyone more than I recommend Jim the Realtor.
When we moved to San Diego in 2005 we rented a big house on Mt. Soledad (La Jolla) with 180 degree ocean views for the same payment as a mortgage on a dump in Chula Vista. Clearly something was wrong. Yet, the media was full of the usual happy-talk nonsense, so I was glad to find Jim's blog. I've followed his honest assessments and data since.
We decided to sell and move to AZ at Thanksgiving. Dec. 1st we met with Jim to sell our home. We closed today (29 days later). Jim orchestrated a feeding frenzy -- we had 25 showings in 2-1/2 days, multiple offers, and sold for well over asking price. I'd say he earned his commission! We have owned and sold homes in 5 different States always using experienced, productive, full-time realtors. Jim outshines them all.
You don't decide to sell and close 29 days later over Christmas (with COVID lockdown) without some miracles. Donna was amazing at performing lots of those miracles and ensuring that everything was done right and on time. They are a terrific team with a very responsive and professional network.
Where do we begin..2020 has been a year for everyone. When COVID hit and shut down both my husband and my businesses, we were left with a mortgage and very little income coming in. We were stressed, scared and felt stuck. We made the hard decision to sell our home and move out of state. We contacted the Klinges' and spent a good hour going over what we hoped we could accomplish. Jim and Donna came over with comps in hand and suggestions on improvements to get our house ready for the market. It was overwhelming to think about, but Donna was there and one step ahead in every scenario. Basically we just approved what they suggested and Donna handled literally everything. We placed our house on the market and within the first day we had multiple offers well above asking price! We couldn't believe it. We were overjoyed! Jim countered the offers to weed through them, and everyone came back with way more. It was amazing, and we are ?? sure it was because of the staging and repairs the Klinges suggested we do.
Due to unforeseen dishonesty from the buyers lender, we hit a big hurdle when trying to close. We had already moved out of state and were shocked when three days before closing the lender dropped a bombshell on the buyers and us. However, Jim and Donna handled it like veterans, not afraid to play hard ball and represent their clients. After a few phone calls with us, and several between Donna and the lender, they had a plan B-Z to make sure we were taken care of. In the end we closed with even more money than we ever thought possible and with very little work from us. The Klinges handled this entire "2020" worthy event with the utmost professionalism and did everything in their power to not only make this as smooth as possible for us, but we also walked away with more money from the sale of the house than we ever hoped for. After working with Jim and Donna, you don't ever use anyone else. They are hands down the best team to represent you in any scenario.
Working with Klinge Realty Group was a great experience! They are very responsive, professional and knowledgable about the real estate market! I would definitely recommend Klinge Realty Group.
Jim and Donna Klinge made the sale of our condo extraordinarily easy. They know the market and gave us sound advice backed by details and very considerable experience, reflected both in the initial pricing and subsequent negotiations. They work together as a team and are always available to talk. We had a few challenges with our property and they were able to coordinate the resolution to everything, including items that I would not think would ordinarily be their responsibility to handle. They made the whole process effortless on our part. They are folks with high integrity and we cannot recommend them highly enough.
Review for Member: Donna Klinge
I cannot believe there are no reviews of Donna yet, ugh!! She is the secret sauce of the Jim Klinge/Donna Klinge combo! I will touch on Jim here, but Donna is why I'm so totally loyal to these two (no offense to Jim :)).
I consider myself a rather savvy buyer/seller. I've bought/sold 7 times in about 15 years. On the buy side, Jim is the PERFECT combo of: completely digitally savvy (he will pull data all day long until you feel comfortable with your chosen house, area, school district, anticipated appreciation rate...anything!), he's super well respected and known in the area by other agents, an amazingly cool but strategic negotiator, is totally devoid of desperation for a sale/commission, and more.
Then once you get into contract phase, Donna literally handles every last and final detail in a concierge-like manner -- totally shielding you from the daily back and forth, noodling and annoyances of the buyer's requests. She solves it ALL; it's miraculous what that woman accomplishes over and above what is even expected in a buy/sell transaction.
On the sell side, Jim and Donna do the same, but even moreso. Donna in particular truly takes everything off your plate: she'll manage getting the house painted, the carpets replaced, she'll go on site (as she Jim both did for me when selling our rental properties) to work with the renters and make sure the house is ready to show -- freeing me to have to take time off of work to do so. They work with A+ integrity, too, so you know you are serving all parties fairly and lawfully throughout.
A home purchase/sale is the most considered you'll ever make. HIRE A SAVVY AGENT, not a friend!, and get what you need out of the transaction. Jim and Donna are our agents for life.
Jim and Donna Klinge are by far the most professional, personable and responsive realtors I have ever worked with. They provide VIP concierge level service in every area of the process of selling your home. My home was marketed so successfully that we received an offer the day after our first and only open house. Thanks to Jim's pricing and negotiating, our house is now the highest sold in our community. Jim's vast experience means he has worked with several realtors and knows the market all over north county. Donna is AMAZING in processing everything in the transaction. She scheduled trades people to work on the house in preparation for the sale as well as the repairs needed before closing. She communicated clearly every step of the way about what would be happening. She took the weight off my shoulders for the whole process. I will always use Jim and Donna for my future real estate needs and I whole heartedly recommend them to anyone buying or selling a home.
Jim and the team at Klinge Reality are without a doubt the best in the business! Not only was Jim helpful and extremely knowledgeable, he was patient and determined to help me find my first home. Jim and his team have been in the business for many years, and it shows. Jim is a wealth of knowledge and was my biggest proponent despite the temperature of the competitive market. I ended up getting the perfect property in my dream neighborhood all thanks to Jim. From the day my offer was accepted, Donna was a real lifesaver. She was extremely helpful, responsive, and knowledgeable when it came to every minute detail, and held my hand through the process. As a first time home buyer I had no idea what the process would entail, but Donna curtailed every concern I came across and made the escrow process feel seamless. Jim and Donna provided me the best home buying experience, and I am very grateful for all they did for me. It was truly a pleasure to work with Jim and Donna and I am already looking forward to the next time we work together!
Review for Member: Richard Morgan
Richard is an amazing realtor! He has high integrity and genuinely cares about his clients and their needs. Richard paid close attention to what I was seeking in a home and was very patient in our search to find it. I would highly recommend Richard and will use him for future transactions. Truly a different kind of realtor experience!
Could not be happier with my experience with Jim and his team. He helped me sell a very unique and challenging property. Throughout the entire process he was always available, honest, transparent, trustworthy, and always put my interests as a seller first. A (rare) true professional! During close of escrow Jim went above and beyond to complete the deal. It would not have been possible without his experience, fantastic team, and pure dedication. Highly recommended!
Thanks Jim and Donna Klinge!