Aging-In-Place & ADUs

Around the coast, the housing stock is finite – there isn’t any more room to build new houses.  Whether they knew it or not at the time, everyone has bought their ‘forever’ home and aging-in-place has become the natural trend. The higher prices and rates have locked out the majority of possible home buyers, but there still aren’t enough homes to sell – evidenced by the relatively low inventory.

A month ago, there were 466 houses for sale between Carlsbad and La Jolla, and today we’re down to 422 active listings – in an era where other areas are reporting a surge in inventory.  There is a real push to build granny flats to create more housing, but that isn’t going to help the resale market. In fact, the building of ADUs will actually make the real estate market WORSE by keeping more seniors aging-in-place, and limiting the resale inventory.

Higher rates and prices will only continue the shift of homeownership being for the elite – only.

From the AARP:

The COVID-19 pandemic has altered how people think about their lives and homes – which has collided with exponential growth in the number of older heads of households and renters. These trends highlight the urgent need to rapidly increase and improve age-friendly and affordable community and housing options.

AARP’s 2021 Home and Community Preferences survey found that over three-quarters (77%) of adults age 50 and older want to remain in their homes as they age. This desire is consistent across the lifespan with 63% of adults overall saying the same. The numbers of older adults wanting to remain in their homes as they age has remained relatively consistent for more than a decade and was not impacted by the pandemic.

Increasing the number of multigenerational households, providing more options like accessory dwelling units (ADUs) or “in-law units”, and encouraging renovations that support aging-in-place are all critical to support this desire.

https://livablecommunities.aarpinternational.org/

Number of Seniors is Growing

It’s probably true that seniors are leading healthier, longer lives and will prefer to age-in-place – which will keep a limit on the number of homes for sale and temper any downdraft in pricing.  What is worse is that the resulting back-up will cause others to stay in their current home forever too!

It was asked on Twitter, ‘how could homes prices get cut in half?’ I said, “Boomers die 10x faster”, which got my Twitter account suspended temporarily.  Let’s see if they do it again!

Reader ‘just some guy’ sent in this UT article – an excerpt:

On Thursday, county officials announced that San Diego County has become the first county in the nation to have all 18 of its eligible hospitals receive the Geriatric Emergency Department (GED) Accreditation.

San Diego County is home to a large population of people age 60 and older, and that demographic is projected to continue growing over the next decade. Today, there are approximately 670,000 county residents in this age group, and by 2030, they are expected to surpass 900,000, said Nick Macchione, director of the county’s Health & Human Services Agency.

Seniors are more likely than almost any other age group to visit the emergency room. The county reports that each year, about 275,000 county seniors make ER visits, which leads to about one-third of all hospital admissions. “That is why it’s critically important to have all our hospitals that are eligible be geriatric certified,” Macchione said.

Boommates

Maybe this could free up some homes for sale. Move in with your friend or neighbor!

Excerpts from the wapo:

Faced with escalating home prices and rents in tight housing markets, as well as careers or earnings curtailed by age or the pandemic, some boomers are looking to share their homes. Enter the boommates.

“With the boomers aging, you see higher and higher numbers in shared housing,” said Rodney Harrell, vice president of family, home and community at AARP, pointing out that boomers are more open than previous generations to trying alternative solutions to the traditional aging trajectory.

In an 1987 interview with NPR, the late Betty White noted that the four women who lived together in “The Golden Girls” did so for social reasons rather than financial necessity. “All that I think we have accomplished is to show that there is an alternative lifestyle,” White told “Fresh Air” about the success of the show. “If you notice, ‘The Golden Girls’ are not together for economic reasons. They’re together for sociological reasons. It combats the loneliness.”

Four decades later, the idea of housemates late into adulthood is experiencing a revival, but with financial factors front and center. As boomers live longer and retire without the financial safety net of employer-sponsored pensions, covering the rising costs of food, housing and insurance become major considerations. Linda Hoffman, president and CEO of the New York Foundation for Senior Citizens, which runs a home-sharing program, noted an increasing number of applications as finances become more of a stressor.

“When we started the home-sharing program in 1981, relieving feelings of isolation and loneliness was the primary need,” Hoffman said. “Now, an affordable place to live is the number one need. Hosts need help in meeting their housing expenses.” Even for housemates who entered into the arrangement for social reasons, the extra money has become more important as their financial picture changed with the pandemic.

“The majority of people considering home sharing with a friend or family member tells me that there’s an opportunity there for more people to take advantage of that excess housing stock that we already have within our own homes, and that perhaps meet your needs, and those of a friend or neighbor,” Harrell said. “Or maybe companionship that may help with costs, such as caregiving. There’s just so much advantage there. And we’re just not necessarily taking advantage of it. It’s nowhere near its potential.”

Read full article here:

Link to Article

Boomers and Their Kids

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:

  1. Those buying a one-story house.
  2. Those buying a multi-gen house so kids can help with senior care.
  3. Those moving to assisted living.
  4. 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!

CalExodus

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.

https://www.capolicylab.org/pandemic-patterns-california-is-seeing-fewer-entrances-and-more-exits/

Reverse Mortgage, Or Sell?

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.

Link to full WaPo Article

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!

Pin It on Pinterest