Reduced homeowner turnover is a drain on California’s for-sale inventory

Homeowners are increasingly owning their homes for longer before selling. As homeowner tenure rises, this translates to reduced turnover, with significant implications for the incomes and livelihoods of real estate professionals.

Homeowners are moving less often today compared to even just a few years ago. In 2020, the average U.S. homeowner has lived in their home for 13 years, up from 8.7 years a decade earlier in 2010, according to Redfin.

Here in California, homeowner tenure in 2020 was even longer, at:

• 17.3 years in Los Angeles, up from 12.2 in 2010;
• 16.3 years in Anaheim, up from 11.7 in 2010;
• 16.0 years in San Jose, up from 11.6 in 2010;
• 15.2 years in Oakland, up from 10.8 in 2010;
• 14.6 years in San Francisco, up from 10.0 in 2010;
• 14.3 years in San Diego, up from 10.6 in 2010;
• 12.4 years in Riverside, up from 8.8 in 2010; and
• 11.8 years in Sacramento, up from 9.4 in 2010.

As seen on the state’s metro level, California homeowners remain in place longer than the typical U.S. homeowner today, and in 2010, too. This continues a rising trend in homeowner tenure noted in a 2019 report.

The two exceptions of California’s major metro areas are Riverside and Sacramento. What separates these two metros from the pack? Their relatively:

• low costs of living;
• high pace of residential construction; and
• low home prices.

When homeowners easily possess the ability to move — and it makes financial sense — they will do it more often. When home prices are more accessible and inventory is plentiful, sellers are more comfortable listing their homes for sale. In 2021, with inventory at historic lows, sellers are worried about their ability to find replacement property, and thus withhold their homes from the market, further enabling the vicious inventory cycle.

Tax incentives dis-incentivize homeowners from moving

Another, perhaps even greater, reason for California’s long homeowner tenures is Proposition (Prop) 13, originally enacted to keep elderly homeowners from losing their homes due to escalating property values and taxes.

Prop 13 caps the amount of property taxes homeowners pay each year, limiting them to 1% of the property’s assessed value (plus an inflation factor) at the time of purchase. Therefore, if a homeowner has owned their home since 1975 when Prop 13 was enacted, they pay property taxes based on their home’s value in 1975.

Since property values have increased significantly since then, one of the natural consequences of Prop 13 is that it rewards homeowners who own their homes for long periods of time. Sure, a would-be seller might consider listing their current home, but to purchase a replacement home would be to dramatically increase their property taxes, thus decreasing their purchasing power.

Therefore, when given the choice, homeowners often choose to stay in place, perhaps making improvements to their current home when they otherwise would have listed.

All of this ultimately reduces turnover, the source of real estate professionals’ income. Further, with less inventory available to homebuyers, demand is left unmet, and competition for a dwindling supply of homes pushes home prices higher and higher, allowing fewer homebuyers to qualify and resulting in our state’s low homeownership rate.

Necessary reforms to boost turnover include:

• builder incentives to construct more housing, especially in the low- and mid-tiers;
• changes to Prop 13 to continue to protect retirees, while balancing the scales with fair property tax rates paid by new and old homeowners; and
• legislative changes, including loosening zoning and reforming housing plans to include more housing and alleviate the housing shortage.

Without intervention, the slowdown in homeowner turnover threatens to weaken an already grim outlook for real estate professionals’ pocketbooks amid the 2020 recession. Forward-thinking agents and brokers: prepare for the lean years ahead by diversifying your skillsets, and being vocal supporters of affordable housing legislation. The current slowdown is not the time to hide, but to reinvest time and energy into your real estate careers to ensure a healthy stream of income even during this economic recession.

Related article:

Legislative steps toward more affordable housing