Wednesday, March 6, 2024 / by Bell Home Team
Boomers are Not Moving Out of Their Big Homes. Here’s Why:
At BELL Home Team, we recognize the evolving landscape of real estate and the challenges faced by homeowners, especially Baby Boomers, in the current market. In a recent article by Anna Bahney on CNN, she highlights the struggles that many Boomers face when considering downsizing from their larger homes.
Mart and Octavian Dragos, Baby Boomers from El Cerrito, California, find themselves in a predicament after 33 years in their spacious five-bedroom home. Despite being empty nesters, they are hesitant to downsize due to various obstacles.
Capital gains taxes pose a significant hurdle for long-time homeowners looking to sell their properties, particularly in regions where home values have surged over the years. While federal and possibly state tax laws provide exemptions for gains up to $250,000 for single filers or $500,000 for couples filing jointly, this may not fully cover profits from the sale of highly appreciated homes.
One major concern for Boomers like the Dragos is the substantial capital gains tax they would incur upon selling their home, particularly in areas where property values have skyrocketed over the years. These taxes can significantly diminish the profits from the sale, leaving homeowners with limited financial benefits.
It has been highlighted by many that the current tax exclusions are outdated, failing to account for inflation and the significant appreciation in real estate values over the years. A $250,000 per person exclusion, particularly in states like New York and California with soaring property prices, falls short of addressing the financial realities faced by homeowners looking to downsize.
Additionally, the scarcity of smaller homes or apartments in the neighborhoods where Boomer’s have lived for a long time further complicates the downsizing process. Many Boomers struggle to find suitable housing options that meet their needs and preferences within their familiar communities.
In numerous neighborhoods where older homeowners have resided for decades, the zoning primarily caters to single-family homes, lacking smaller residences or multi-family options like condos or apartment buildings. This housing gap, often referred to as the "missing middle," presents a challenge for those seeking to downsize. While this sector has been neglected and restricted in many regions, some communities are gradually addressing this issue by permitting the construction of smaller apartment buildings and accessory dwelling units (ADUs) such as granny flats.
While the availability of apartment buildings won't immediately change and allowing granny flats alone may not suffice, some Baby Boomers might discover a viable option in relocating from their larger homes by constructing an ADU on their adult child's property.
Moreover, the financial incentives of downsizing may not always align with reality. Rising property prices and closing costs, often eat into the potential profits from selling a larger home and purchasing a smaller one.
Many older homeowners considering downsizing are deterred by the exorbitant costs of smaller homes in the current market. For instance, a homeowner selling a property for $400,000 may discover that a condo in the same area, suitable for aging in place, costs $300,000. The profit of their sale barely offsets the new purchase, leaving little to contribute to retirement funds. Consequently, numerous homeowners question the rationale behind downsizing if it doesn't significantly reduce expenses.
At BELL Home Team, we understand the intricacies of the real estate market and have been assisting clients with navigating these challenges. No matter where you’re currently at in your homeownership journey, we provide valuable insights and support to help you make informed decisions in today's dynamic real estate landscape.
Original Article: By Anna Bahney, CNN [CNN]( https://www.cnn.com/2024/01/29/economy/why-boomers-are-not-moving-out-of-their-big-homes/index.html?_cldee=QdQEvED97sMnVj4cwHRiXK32iENrToPoNhRNpcIT6EThOZEG4nFLAKsEaYV6jwek&recipientid=contact-57f0dbf47ca747089274a1c12ac1e57a-7c2c5877cd5d4e6f9d1345760eeb90b5&esid=93dcdb3c-35d7-ee11-9c94-00155d0079bb)