Much has been said about the lack of housing inventory in the current market. One reason for this seems to be systemic and broadly national in scope: people are not moving as much as they used to.
In Figure 1 below, we graph the average length of residence for those who sold their homes in the respective year for the nation as a whole. Since this does not include those who did not sell, it understates the average length of residence, but does provide a consistent gauge of mobility.
Note that during the fairly rapid appreciation period of 2000-2006, there was a high sales volume and more frequent moving. Since then, homeowners have generally stayed put longer and longer. There are several reasons for this, including the aging of the population. The average age of all households, including renters, was 46.8 in 2000, according to the U.S. Census. Twenty years later, it was 52.1, an increase of 5.3 years or 11.3%. Older adults have been keeping their homes while younger adults, straddled with student debt, have been delaying marriage and entering the housing market later.
At the top end of the market, capital gains taxes cannot be avoided, even with the current exclusions of up to $500,000 for a married household, so these owners retain their homes, sometimes passing them onto heirs. In states like California, owners do not like risking reassessment for property taxes, and staying put tends to ensure the benefits of Prop. 13, which states that property tax increases are limited to 2%, rather than based on the true value of the home.
As we are currently in a period of historically low mortgage rates, many current homeowners will wish to retain current financing in place when rates are higher, as is likely in the next few years. This means that this increasing desire to stay put will likely continue for a while.
In the year 2000, average mobility was lower than today in a broad cross-section of larger states, as seen in Figure 2. The conclusion is that most households are staying put much longer than a few decades ago.
The length of residence data was also run by core-based statistical area (CBSA), with a wider range of results based on less smoothing. Not surprisingly, some smaller CBSAs exhibited the highest levels of length of residence on homes sold. These tended to be markets with declining economic bases and a higher proportion of retirees. For example, residents in many once-flourishing small towns, facing the realities of a more modern economy, simply stay and age in place. Staying put in the same house is the most affordable solution for an aging population left behind the technical skill requirements of most growing economies.
Another important measure for mobility is the turnover rate, which is defined as the percentage of the housing stock sold in a given year. On a nationwide basis, this number has historically ranged between
3% and 5%. However, as with the length of residence, there is a wide variation between different markets, as seen in Figure 3 below, which shows the 2020 single family turnover rates for a number of major CBSAs.
In Figure 4, below, we graph 2020 single family length of residence versus turnover rate for a wider range of CBSAs. We see that in markets where the length of residence is higher, more than eight years on average for homes sold, we see much lower turnover rates in the housing market. A 5% turnover rate is akin to a 20-year average residency for all homeowners. The furthest point to the left side of this graph is Honolulu, with a turnover rate in 2020, despite COVID-19, of only 2.7%. San Francisco, another supply-constrained market, is next lowest at 2.9%. These markets are characterized by significant past appreciation, chronic difficulty in finding housing, and significant embedded capital gains.
Boise, on the other extreme, is characterized by more elastic supply and much lower embedded absolute capital gains, and prices one-fourth those of San Francisco for single family homes.
In Figure 5, we expand the sample to 100 CBSAs and again find a similar slope and relationship between length of residence and turnover rate where the two are inversely related. We can improve the relationship slightly by using non-linear models, but it seems that a 2% turnover is near the minimum we observe in those markets, even where the households have a propensity to stay put. This can likely be explained by “life events” such as marriage, divorce, loss of spouse, birth of child, etc., which act as catalysts for households to move.
As of Spring 2021, housing markets remain hot across most of the nation and across all price ranges. Inventories remain low, and everyone is wondering when the market appreciation rates will slow down, and what will cool these markets.
Two factors will have a cooling effect on the housing market: price increases that could set records for prior 12-month appreciation rates over the next few months, and higher mortgage rates.
Higher mortgage rates may not occur for a number of months, but the continued price increases are a given. Among the many factors that have inhibited supply: negative changes in credit ratings, unemployment or participation in mortgage forbearance programs, locked-in low mortgage rates, the avoidance of capital gains taxes faced in the more expensive markets, and an increasing length of residence, as reviewed here.
Homeownership rates among seniors have never been higher, and many residents are simply aging in place. This is especially true for those in smaller markets with an outdated economic base, perhaps surrounding closed down manufacturing plants or simply lacking the skills for modern high-tech jobs. It
is simply more affordable to stay put and many Americans are doing just that, amplifying the angst of potential new homebuyers.