What are the reasons behind the lack of inventory of homes for sale?

A:

There are a couple of reasons for the lack of inventory of homes available for sale in our current market. The first reason is because we just have not been building enough housing units in the state of California for decades. A few years back, our governor campaigned on a goal of creating 3.5 million housing units by 2025. In a state that permits around 100,000 housing units a year, delivering 3.5 million units at the current pace is not realistic.

California remains one of the most difficult places in America to build housing, causing a supply and demand imbalance. It has been estimated that the state has a 1.3 million housing unit shortage. SB 9 was passed by the state legislature in part due to local governments’ resistance to build more affordable housing units. SB 9 makes it easier to build Accessory Dwelling Units and smaller homes on smaller lots, by overriding existing local density limits in single family dwelling zones.

Another reason is the current state and federal capital gains tax laws. Many longtime homeowners don’t sell their homes even once they become “empty nesters” because they don’t want to pay the taxes. Given the large increases in homes values over the last decade, this can often result in a big tax bill for the homeowner even with the $500,000 exemption that a married couple gets when they sell their primary residence.

A:

Lack of inventory of available homes for sale is not a new challenge for the Bay Area. It has been a fact of life for buyers here for many years, creating a highly competitive market and prices that continue to soar.

A contributing factor has arisen recently, and its impact will be hugely significant indefinitely: Record-breaking low interest rates.

With rates being in the low 3% range in 2021, numerous savvy homeowners refinanced, locking in a 30-year fixed rate mortgage so low that the “debt load” to carry their homes became uber-affordable.

This has seemingly affected people’s decision on whether or not to sell their homes at all.

Should a homeowner decide to move, the cost to carry their existing home is low enough that renting it will often offset the cost of continued ownership.

With home prices appreciating so readily, it often makes the best investment sense to keep their former home, therefore effectively taking it off the market for the foreseeable future.

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