Housing Bubble 2: Return of the Ugly

314 readers

470 users here now

A community for discussing and documenting the second great housing bubble.

founded 6 months ago

MODERATORS

SeattleRain

Baby boomers aren't downsizing, and it's straining the housing market (www.kjzz.org)

submitted 2 months ago by SeattleRain to c/housing_bubble_2

27 comments fedilink hide all child comments

you are viewing a single comment's thread
view the rest of the comments

[–] partial_accumen 2 points 2 months ago (1 children)

There is no reason that they should downsize.

I disagree. "Downsizing" is a catchall phrase for a number of different things that are accomplished with getting a smaller living space in advanced age. The most obvious is less house to keep clean, but it also usually means less house to maintain with expensive roof, HVAC, and usually more landscaping responsibilities. For those in retirement it also means you can live in a smaller home which means lower property taxes eating away at the finite retirement savings. Finally, when you get older you usually have different mobility limitations. This can mean houses with 2nd floor bedrooms or basement laundry become not just a hassle for navigating stairs but also possibly sources of sever injury from falling. Smaller homes built with retirees in mind usually have wheelchair wide hallways, wheelchair wide doors, first floor bedroom/laundry, and possibly spaces for walk-in/wheel in tubs and showers.

If we're lucky enough to live long enough to get old, we want to be able to live as best we can and many times that means a smaller and more accommodating house for those aging bodies.

A paid off house is a security against bad times.

If you have a large paid off house, you can usually afford a small paid off house as a replacement...and historically extra money put in the bank. The challenge these days is that lots of retirees don't have a paid off house so they need to stay in their larger one with preferential interest rates.

[–] kitnaht 2 points 2 months ago* (last edited 2 months ago) (1 children)

For those in retirement it also means you can live in a smaller home which means lower property taxes eating away at the finite retirement savings.

I don't know if you know this or not, but there are MASSIVE tax benefits for those who have lived in the same house for 25 years. They get to write off something like 100k of tax burden if they're over 55, along with another 25k in homestead exemption.

Plus, housing taxes are generally limited to a 3% or so increase every year; so many of these older folks would actually be paying MORE taxes, on a smaller property if they were to take your advice.

Many of these people are paying the taxes of the home they bought when it was $100k; but is now worth 1M

[–] partial_accumen 1 points 2 months ago (1 children)

I don’t know if you know this or not, but there are MASSIVE tax benefits for those who have lived in the same house for 25 years. They get to write off something like 100k of tax burden if they’re over 55, along with another 25k in homestead exemption.

Plus, housing taxes are generally limited to a 3% or so increase every year; so many of these older folks would actually be paying MORE taxes, on a smaller property if they were to take your advice.

These sound like state, county, or local rules specific to those regions. Are any of these you're mentioning federal that would apply to all in the USA?

[–] kitnaht 2 points 2 months ago* (last edited 2 months ago)

There is not such a thing as a federal property tax. But similar rules exist across much of the USA.

From Cornell Law School:

A homestead exemption is a legal provision that prevents creditors from being paid off from a debtor's homestead, and also includes a homestead‘s exemption from property taxes and from the death of the homeowner's spouse.

State laws regarding the homestead exemption vary widely. Most states have limits on the amount of exemption a debtor is entitled to, such as $20,000, but a few states have no limits at all, exempting the entire homestead of the homeowner for debt service. Other states have limits that depend on the size and type of property or the age of the property owner.

Additionally, many of these protections (not homestead, but additionals that exist in various states) only kick in once a homeowner has lived in the house for more than [X] number of years.

It would be financial suicide for many older folks to move to a smaller dwelling. You can leverage your home for home equity loans as well, so moving in the current state of the housing market would be downright WILD to think of; you would be purchasing a smaller estate at an inflated price, re-pinning your tax rate to the inflated price you bought it at.