Recently I took a listing in one of the lovely Gated communities of San Elijo Hills, a community called Westridge.  This San Elijo Hills won the master planned community of the year award in 2001 and sits about 6 miles inland from some of the best Southern California Beaches.  The homes are well built, the schools and parks are just down the street, and it has been a very popular development to purchase a home in.  Dispite this, shortly my clients listed their Westridge townhome, there were 24 other town homes out of 117 on the market!

Well, this community is going through what I call the TWO Year itch! 

What is the two year itch you might ask?  In 1997 our government passed an extensive tax reform act that impacted how people sell homes.  If a married couple lives in a home as their primary residence for two out of the last five years then they can sell that home and receive up to $500,000 in appreciation as a TAX FREE gain (single people can receive up to $250,000).  So, how is this empacting newer communities through-out San Elijo Hills, San Diego County, and around the Country?   “The Two Year Itch” basically gives sellers added incentive to place their homes on the market even when they really have no Real Intention of selling their home.  This is happening in almost ever newer community, you may have seen the sprouting of real estate yard sign sighns at the 23rd or 24th month of a new communities existance.  This is a mass exodus of people who are trying to take advantage of their two years of appreciation. 

What impression does this give potential buyers?

Two main questions come across the lips of many buyers who drive into a two to 5 year old community:  Why are there so many yard signs, and what is going on here?  Imagine driving up to a lovely gated community and seeing 23 listing signs outside the gate!  Many buyers just turn and run.  What was created as a great stimulation to our economy has turned into a nightmare to those few sellers who really need to sell their homes, the 10 to 15% who may have gotten in over their heads when they purchased their home. 

So Sellers, here is a little Econ 101, the basic laws of supply and demand state that if there is too much supply then prices go down.  If you really don’t have any intention of selling (i.e. if you are telling yourself that if you can get your over inflated price you would CONSIDER selling) take your home off the market!!! Because all you are doing is driving down prices.  How do you know if your home is priced too high?  This is very easy.  Your listing agent should keep you updated of what has SOLD Recently (note that I didn't say what was listed) in your neighborhood.  The most recent and closest Sales to your home are those that matter the most.

While this tax change has made many people hundreds of thousands of dollars, particularly those homeowners who bought their home in San Diego County prior to 2004, it has also forced some homeowners to take a loss because of an over supply in inventory was on the market when the HAD to sell.  This over supply has brought down prices in communities with a glut of listing on the market, even in markets where the prices have trended up they could have gone up even more if there was less inventory! 

The Two Year Itch effects communities that are between 2 and 5 years old and what strikes us agents is we see an influx of sellers who have no real intention in selling their home.  Because these "Sellers" have no real intention of selling their home this pushes up the market times in these newer communities.  Furthermore, the increased number of listings reduces the barganing power that those sellers who really Need to sell have.   In some newer communities I have seen up to 50% of the active listings being listed at what I would consider overpriced.  Within 3 to 6 months in those communities the majority of these overpriced listings eventually Expire or are Canceled but not after doing damage to the market.