3 Reasons Why You’re Seeing Fewer Homes for Sale.

March 1, 2023


Lean Inventory Everywhere.

Usually by the first week of March in any city along the Peninsula, you would expect to see a healthy and growing inventory of homes for sale. Sellers who have planned to sell their home for the peak Spring season will have already listed their homes, usually right after the Super Bowl weekend. The trend continues and the inventory steadily climbs after that.

But inventory has been lean since the beginning of 2023. For the first two months of this year, the number of new single family home listings in San Carlos is down 18% from January and February of last year. That decline is actually greater when you consider that a significant number of the homes that were listed in Jan-Feb of this year were actually re-listings of homes that did not sell in the second half of 2022 when the market was in a free-fall.

So why has the number of listings dropped so precipitously this year? There are likely quite a few reasons, but here are the top three in my opinion:

  • Mortgage Rate Exchange: Most San Carlos homeowners who have lived in their homes for even just the last two years have likely secured an incredibly low fixed mortgage rate when money was cheap. Unfortunately, that mortgage does not transfer with you when you move. Consequently, anyone who is looking to move is now faced with the prospect of exchanging a 3% (or less) mortgage interest rate for a 6% or higher rate on their new home. This doesn't impact every seller, because some people have enough equity to pay cash for a home at their next destination. And other sellers simply don't have a choice due to a job relocation. But I am willing to bet that a number of potential home sellers today who have flexibility in their move date are sitting tight until the gap between their current mortgage and their replacement mortgage narrows a bit.
  • Employment Uncertainty: Speaking of job relocation, it is one of the “three D's” why people sell their homes in the first place: Death, Divorce, and Displacement. Our local economy is driven largely by tech and biotech, and most of the big local companies have hiring freezes in place, even for highly skilled positions. That means the job relocation activity has likely dwindled to a trickle. Another aspect to consider with a shaky job market is that people generally don't make big decisions like upsizing or moving to another area when they are uncertain about their job security.
  • Capital Gains Liability: This one has been the thief of joy for new listings for at least 10 years. Because of the dramatic increase in home values over the past 20 years, most homeowners will face some sort of capital gains liability when they sell, even after the $250K exemption per person (or $500K per couple) and factoring in any improvements to the home. The longer the home was owned, the bigger the capital gains bill will be. This is either a glass half-full or half-empty perspective. On one hand, you're paying a significant capital gains bill because you made a tremendous profit on your sale. On the other hand, you're simply not going to write a 6-figure check to the government under any circumstances. It's the latter group that will choose to keep to avoid the capital gains hit, even if they move out of the area.

There are likely other factors that are keeping sellers out of the market right now, like the lovely weather we've been having since January. But I believe the three reasons above are the main culprits. Two are based on economic conditions, and the third solely on taxation policy — and none of these three are easily fixed.

What are your thoughts? Do you fall into one of these three categories?

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