The month of October brings all kind of wonderful memories to my mind. The change in the seasons, cooler days, the sound of soft rain on the roof and the smell of warm bread baking in the house. Pumpkins, pies, spices, trick or treats and the changing colors of the trees…wait a minute! I don’t live in NY anymore.
Life has changed since I moved to California over 18 years ago, and October has a much different feel. We experience drought, even hotter days than at the start of the summer, golden colored landscapes and the dreaded fire season. After last October, some of us here in Sonoma County feel very fortunate that we survived the firestorm that devastated much of Santa Rosa and a good deal of our housing market. Others were not so fortunate.
So, what about our housing market? Well there is a lot of speculation about it and what will happen in the future. It’s the Bay Area for goodness sake, which has for many years been a haven for beauty, culture, good clean fun and living in paradise. If you own a home here you are doing well, and if you sell it you could do even better. All of that is true, and what the not-so-distant past should tell us is that we cannot take that for granted. However, it’s getting more expensive here and home prices are such that first time home buyers are frustrated. Inventory is still short. Then you also have people that would like to sell, and then find themselves wondering where they will go.
That brings up California’s Proposition 5, which is the Property Tax Initiative that California voters will see on the Ballot this November (2018). Why is this Ballot important and what does it have to do with buyers not able to buy and sellers worried about selling? Well let me give you a hypothetical situation.
My neighbors Mary and Pat own a beautiful 3-bedroom home in Petaluma that they purchased in the mid-1980s and where they raised their family. In 2010, their daughter Eva went away to college in Southern California. After graduation Eva got married and settled down south with her new husband, so Mary and Pat became empty nesters. Now in 2018, Eva is starting a family of her own and Mary and Pat will be grandparents. They are so excited, but Pat’s health is beginning to decline, and upkeeping the house in Petaluma is becoming a chore. Plus, Mary is ready to retire. It would be much better if they downsized and moved closer to Eva. There is a nice little condo complex within walking distance to Eva’s house where they could afford to buy in cash and have some money leftover without touching their retirement. Their Realtor tells them that there are buyers in the market ready to purchase in their Petaluma neighborhood, so they should do OK if they sell. They are really starting to get excited about this prospect, so they talk to their accountant to ask some questions.
Currently if they go through with a new sale, the property taxes on the condo in Southern California would be based on Proposition 13, the Tax Limitation Initiative which was approved in 1978. Prop 13 requires that properties are taxed at no more than 1% of their cash value when purchased and then subject to annual increases that are capped to the inflation rate, or 2% – whichever is less. Then if a property transfers again to new owners, that property is again reassessed at 1% of its new full cash value.
Mary and Pat are really disappointed, but what can they do? How can Proposition 5 benefit Mary and Pat and others who find themselves in a similar situation? Well, if Proposition 5, passes it would amend Prop 13 and allow homeowners who are aged 55 or older or severely disabled to transfer the tax-assessed value of their home to a new purchased home anywhere in the state. Just think, if Mary and Pat (or others like them) move, it may open up the market to folks who want to start a new family in a nice sized home and in a great town like Petaluma, and also allow Mary and Pat to buy closer to their children and grandchildren. In the long run everybody wins.
For more information on Proposition 5 and other ballot measures, see the links below:
Proposition 5 Information: ballotpedia.org/California_Proposition_5,_Property_Tax_Transfer_Initiative_(2018)