This week’s Q&A column is sponsored and written by Peter Crouch of McEnearney Associates Realtors®, the leading real estate firm in Alexandria. To learn more about this article and relevant Alexandria market news, contact Peter at 703-244-4024 or email [email protected]. You may also submit your questions to McEnearney Associates via email for response in future columns.
Question: Have the stars aligned for downsizing?
Answer: Despite the pandemic, or partly because of it, the seller’s market in real estate has continued. A several-years-long trend toward fewer houses on the market has only become a more acute shortage. As we all obeyed stay-at-home orders, even fewer of us were selling our houses than in prior years.
As safety measures became standard protocol, however, buyers and sellers returned to the market after the first month or so of C-19. But more buyers than sellers returned, and the number of homes for sale remains extremely low. The overall effect has been that prices have accelerated, and most well-maintained homes are receiving multiple offers when they go to market. It is tough to be a buyer these days — but great to be a seller.
That dynamic can keep a seller from considering a move, since they will likely become buyers for their next house. When you look more closely, however, it could be a wonderful time to move to smaller housing. The statistics show that the housing shortage is most acute in the single-family arena. The number of detached houses, in particular, is way down over previous years, followed by townhouses. That makes sense — shortages have been building for several years, and the pandemic has driven some folks out of apartments/condos and into single-family homes, increasing demand.
Condominiums, however, have not had as much demand. In fact, the supply of condos on the market overall is up from years past. It is much less of a seller’s market in the condo world. I’m not sure it is a buyer’s market for condos, but it certainly is different from the demand for single-family homes.
So, what is the opportunity for downsizing? First, single-family prices have accelerated by as much as 15% in the last 12 months, depending, of course, on location and condition. For many existing homeowners, that means their homes are worth much more — often $100,000 to even $200,000 more. Plus, condos are the softer area in the market, again depending on location and condition. For anyone who was considering downsizing before the pandemic, this could be a wonderful opportunity to sell high and buy low (and close in/”walkable”). If downsizing away from our high-cost area, the benefit could be even more accentuated.
Another factor is the treatment of capital gains taxation on the sale of a principal residence. Every taxpayer selling a principal residence is entitled to an exclusion of gain of $250,000 or $500,000 for a couple. (Read IRS Publication 523 for conditions, and always check with your tax professional regarding your personal situation.) So, if a house has gone up dramatically in recent years, and you are thinking of going smaller, you could have a nice opportunity to go smaller with a great tax benefit. There is, however, a hint that capital gains tax treatment may change under the new administration, so it could be the best time to take those winnings off the table, so to speak.
With the roll-out of the vaccines and the lifting of some restrictions, there is a prospect of life getting back to somewhat “normal.” It might be time to consider — or reconsider — that move to smaller housing. The opportunity right now is to take advantage of the strength of the single-family market, the relative weakness of the condo market and the current very favorable tax treatment of housing gains.
Dad always told me to buy low and sell high. Have the stars aligned for you?
Pete Crouch is a Seniors Real Estate Specialist, which means he is well-versed in all aspects of moving as we age. His own downsize gave him tremendous insights into what is involved, from emotional matters to real estate considerations. Pete is a Board Member of At Home in Alexandria (AHA), our local Senior Village, and was the 2018 National Recipient of the “Outstanding Service Award” by the National Association of Realtors for his work with Senior Moves. Text 703-244-4024 or email [email protected] for a copy of his Downsize Alexandria! Booklet about living more simply in Greater Alexandria.
If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: [email protected] or call 703-549-9292.
McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. www.McEnearney.com Equal Housing Opportunity. #WeAreAlexandria