While predictions are usually made in December for the coming year, Berkeley Hills Realty has enough markers to predict that 2019 is going to be THE year to downsize a home.

Why? Many economists are predicting a market shift based on the factors detailed below.  Our decades of experience in the real estate market have shown us that the best way to capitalize on a downward shift is to sell off some equity while still at the top of the market.  Downsizing accomplishes this and may already be something many are considering upon recognizing the extent of the market recovery and realizing the boon of the upmarket over the last several years.

Selling a large home at the top of the market tends to yield a larger gain than waiting for a deal on the smaller house. For instance, selling a million dollar home for 10% more than a future market may yield represents a $100K gain, versus waiting to save 10% on a $750,000 house which can only save $75K.  The 25K in the balance of this scenario is not insignificant.

 

Here are some of the Bay Area real estate market factors we are watching for 2019. Many support the decision to downsize::

 

1. The California Association of Realtors forecasts a modest 3% gain in housing prices for 2019.   This is half of previous years predictions due to an “affordability ceiling”.

Over the past few years, California economists have been predicting a market slowing by 2020 due to two main factors; a projected increase in inventory as sellers have fully recovered from the mortgage crisis, and a decrease in affordability due to projected interest rate hikes.

In truth, supply has shown only modest improvements, and the interest rate increases, still at historic lows, have not sent buyers running for the hills.  However, this year a new curve ball was added. Tracy Sichterman, Berkeley Hills Realty owner/broker, was invited to speak at the California Association of Realtors REImagine conference this month. While attending, she heard talk about a newly verbalized market threat: the “affordability ceiling”.

In 2019, California housing affordability will hit an all time low of 25%.  Californian incomes can no longer continue to fuel a rise in home prices. In fact, 35% of Bay Area homebuyers moved out of the state in 2017 due to affordability constraints.

 

2. The Top of the Market Still Offers an Appealing Outlook to Our 2019 Downsizers.

The good news for 2019 Sellers is that you are still likely selling at the top of the market. And since the Bay Area is so desirable, we will likely continue to see low inventory and high demand through the Spring market. In fact, the median home price for a home in Berkeley is $1,139,000 and for Oakland it is $669,000, both prices at their highest levels.

However, the market is changing.  “The surge in home prices over the past few years due to the housing supply shortage has finally taken a toll on the market,” said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young.

 

3. Watch for rising interest rates which will put a dampening effect on the market in 2019.

While home prices are predicted to temper next year, interest rates will likely rise and compound housing affordability issues. In fact, the Fed signaled in September after an interest rate hike, that they will move to raise the rates again in December and again next year. https://www.marketwatch.com/story/fed-hikes-interest-rates-signals-strong-support-for-another-increase-in-december-2018-09-26

The average for 30-year, fixed mortgage interest rates will rise to 5.2 percent in 2019.

Here downsizing clients still benefit.  Although interest rates on loans are showing subtle increases, most of our clients are able to downsize into smaller loans and relatively smaller payments.  Some can even buy the downsized home outright, avoiding future mortgage payments altogether.

 

4. If New Buyers Are Waiting, Downsizing Buyers Should Act.

With interest rate hikes, along with affordability issues, first-time buyers are starting to hold back from the market.  “Would-be buyers who are concerned that home prices may have peaked will wait on the sidelines until they have more clarity on where the housing market is headed. This could hold back housing demand and hamper home sales in 2019.”,” said C.A.R. President Steve White.

There is an upside. We believe this could create spots of opportunity in the lower price ranges. Lower price ranges have historically held the most competition in our local market.  If competition in this tier lessens somewhat, it could present more options when looking to downsize in a new “forever home.”

 

5. Prop 5 Could Make Your Move Easier.

Some good news if you are considering selling is that Proposition 5 could make downsizing more affordable by allowing you to take your property tax assessment with you.

Right now, homebuyers over 55 years of age are eligible to transfer their tax assessments from their prior home to their new home if the new home’s market value is equal to or less than the prior home’s value and once in their lifetimes. Furthermore, counties, not the state, decide whether tax assessments can be transferred across county lines, with only 11 counties currently participating.

If Proposition 5 passes in November, then on January 1, 2019, homebuyers who are age 55 or older or severely disabled would be allowed to transfer their tax assessments, with a possible adjustment, from their prior home to their new home, no matter (a) the new home’s market value; (b) the new home’s location in the state; or (c) the buyer’s number of moves. Click here for more info: https://ballotpedia.org/California_Proposition_5,_Property_Tax_Transfer_Initiative_(2018)

Berkeley Hills Realty may not hold a crystal ball on our prediction, but as you can see from the information above, there are solid indicators to show that 2019 is going to be the year to downsize. If you would like to discuss your options more fully, please call us today.