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Forever Home?

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.”

Read more stories plus 400 comments too:

Link to WSJ Article

Retiree Tax-Free Moving Plan

Here’s a two-year moving plan for those long-timers who:

  1. Have substantial equity in their home, but
  2. Don’t want to pay any capital-gains tax, and
  3. 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.

San Diego Has Been Undervalued

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!

Hope For More Inventory?

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

Year
Number of Listings
Number of Detached-Home Sales
2019
494
265
2021
293
268

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:

https://www.zillow.com/research/march-2021-market-report-29350/

Ten More Years?

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.

Read full article here:

https://www.forbes.com/sites/joshuapollard/2021/02/03/the-housing-market-just-began-a-new-10-year-upward-move/

Retirees Are Upsizing?

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.

Read full article here:

Link to CNBC Article

Multi-Gen Demand

The new NAR report on the characteristics of homebuyers was released today.

Let’s note how many homes were bought to accommodate kids moving back home – or who never left.  Past generations never had to worry about kids moving out when everybody could afford a home.

As the prices go sky high, more kids will be faced with either having to move far away if they want/need to buy an affordable home, or live with their parents for the duration – yikes!

One more variable to add to the Reasons-To-Move theories, and help explain why demand is exploding!

The Trend Towards Larger Homes

Remember when it seemed to make sense that because home prices were escalating, people would be buying smaller homes? Boy, did Covid-19 change that – now the larger homes are driving the market, which suggests that the move-up market has come alive:

(To keep a healthy sample size, let’s combine October and November)

NSDCC Sales and Pricing Over/Under 3,000sf

Oct + Nov
# of Sales Under 3,000sf
Median SP
# of Sales Over 3,000sf
Median SP
2019
265
$1,135,000
204
$1,800,000
2020
362
$1,255,444
320
$2,150,000
% Diff
+37%
+11%
+57%
+19%

Rapidly-increasing prices aren’t slowing down sales….and may be speeding them up!

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Could the increase in larger-home sales be due to more inventory?

No – actually we have had fewer Over-3,000sf homes listed this year than in 2019:

NSDCC Total Listings between Jan-Nov

Jan-Nov
# of Listings Under 3,000sf
# of Listings Over 3,000sf
2019
2,454
2,307
2020
2,273
2,127
% Diff
-7%
-8%

The larger-home sales were already benefiting from multi-gen buyers needing a place for Mom. Add to that demand the move-uppers who may not need a place for Mom yet, but if they sense it might be coming in the near future, then might as well buy bigger now – and maybe get granny to throw in some of her dough!

Will Prop 19 Increase Inventory?

The U-T asked their twelve real estate experts about the effects of Prop 19:

Q: Will Prop. 19 substantially increase home inventory in California?

Of the local experts, 11 out of 12 said NO, and the justification for the one YES answer could have been just as easily been reasons to say NO.  Gary’s answer above was the best and most-accurate. See the rest here:

Link to Article

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How Many Baby Boomers?

The boomer sales spree is inevitable, it’s just a matter of when.  But if it’s a slow methodical process over the next two decades, will we even notice? Let’s say the 100,112 homes turn over in the next 25 years (and only 1/3 are inherited by the kids), we’d average 223 more sales per month.  There were 3,827 residential sales in the county in September. Results may vary!

Homeownership has long been considered part of the American dream. But first-time homebuyers — especially millennials and Gen Xers — are facing an uphill battle when it comes to house hunting.

This is in part because of a growing trend in which baby boomers, the generation that owns the largest share of American homes, are planning to stay put. In fact, a 2018 survey conducted by AARP found that 76 percent of Americans over the age of 50 would prefer to remain in their current home — rather than move in with family, to a nursing home, or to an assisted living facility. That is leading to less inventory for new buyers.

According to the U.S. Census Bureau, the share of homeowners over the age of 55 has been steadily increasing. In 2008, at the onset of the Great Recession, Americans over the age of 55 owned 44.3 percent of homes. By 2019, that percentage had increased to 53.8 percent. While the share of homeowners under the age of 35 remained fairly steady within the same time span, the share of homeowners between the ages of 35 and 54 decreased from 42.3 percent to 34.1 percent.

While baby boomers — defined here as Americans between the ages of 55 and 74 — comprise just over 22 percent of the U.S. population, they account for nearly 42 percent of homeowners nationwide.

Link to Full List

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