But, this question comes because most people are unaware of certain factors that affect the real estate market that go beyond the average economic analysis. One of the biggest factors that are often overlooked is how long people actually stay in a home they have purchased.
The median length of homeownership in the US is currently about 13 years. And, according to data from the National Association of Realtors, people born between 1946 and 1964 (the so-called “Baby Boomers”) have a median tenure of 21 years in their homes. Los Angeles finds itself between these two numbers with an average homeownership length of 18 years.
Now, there is obviously a lot of reasons that go into this statistic. But, one significant reason could be a fundamental misunderstanding of Prop 13 and how it affects property taxes in California.
For those who are not familiar, Proposition 13 is a state constitutional amendment that was passed by California voters in 1978. Among other things, it capped the amount of property tax that could be assessed on a given piece of real estate at 1% of the assessed value of the property at the time of purchase.
So, for a home that was purchased for $100,000, the property taxes would be capped at $1,000 per year no matter how much the value of the home increased.
While this has been great for long-time homeowners, it has had the unintended consequence of making it more difficult for people to move up the housing ladder.
The way it works is that a senior can occupy their current residence and keep the same tax bases all the way through the period of homeownership. So, there is a fear that if they move, their property taxes will go through the roof and they won’t be able to afford it on a fixed income.
This means many people stay in their homes much longer than they would if they didn’t have this proposition to worry about. So, while the average length of homeownership in LA is 18 years, it could be significantly shorter if Proposition 13 was better understood.
However, the law has been updated. So, now a senior citizen can sell their current home, buy a new home, and maintain the same tax bases. It can be transferred to the new property. What does this mean for the near future?
Educating people about the benefits they are entitled to under the updated Prop 13 is paramount to increasing the inventory of homes on the market in LA. If they understood that they could sell their home, buy a new one, and keep the same property taxes, I believe we would see a lot more people putting their homes on the market.
The education process is already underway. The Los Angeles County Assessor’s Office has been working diligently to spread the word and help seniors take advantage of this opportunity. There have also been news articles and TV segments dedicated to the topic.
But, we need to do more. We need to reach as many people as possible and let them know that they can move without fear of their property taxes going up.
Only then will we see the inventory of homes on the market in Los Angeles start to increase. Until then, buyers will have to continue to be patient and be prepared to move quickly when they find a home they like.
If you or someone you know is a senior citizen and would like more information about transferring their property tax base, please contact the Los Angeles County Assessor’s Office at (213) 974-3211. And, when you’re ready to sell your current home, contact us!