After 33 years and four children, Baby Boomers Marta and Octavian Dragos say they feel trapped in what was once their dream home in El Cerrito, California.
Both over 70, the Dragos are empty nesters, and like many of their generation, they’re trying to figure out how to downsize from their 3,000-square-foot, five-bedroom home.
“We are here in a huge house with no family nearby, trying to make a wise decision, both financially and for our well-being,” said Dragos, a retired teacher.
But selling and downsizing isn’t easy, appealing or even financially advantageous for many homeowners like the Dragos family.
Many Boomers whose homes have surged in value now face massive capital gains tax bills when they sell. This is a kind of tax on the profit you make when selling an investment or an asset, like a home, that has increased in value.
Plus, smaller homes or apartments in the neighborhoods they’ve come to love are rare. And with current prices and mortgage rates so high, there is often a negligible cost difference between their current home and a smaller one.
I think this article misses one of the big downsides to downsizing in California (where this article is focused): property tax. In California, property tax is basically based on purchase price. This means even if an owner can make a healthy profit moving to a smaller home, that profit might be gone in 10 years due to the increased property taxes. Even if seniors are interested in downsizing, it might be financially detrimental to do so, and they stay in place, which constrains the supply of “family homes”, making them more expensive and basically adds to the housing crisis.