This past winter, the number of homes and condos sold in the Bay Area were the lowest in seven years, according to CoreLogic Dataquick. The Bay Area housing market is suffering from an inventory drought, which reflects a lack of supply, not a lack of demand. It is a great sellers' market, so why the the shortage? Kathleen Pender points out a few reasons:

  • Fear of buying: People are scared to sell because quite frankly they aren't sure that they will be able to buy another home in the Bay Area. "The move-up market is pretty much frozen," said Matt Fuller, an agent with Zephyr. "Even if you can do great on the sale of your property, you are terrified to enter the market as a buyer."
  • Foreclosures & TICs: Postforeclosure sales have dried up. "After the bubble burst, foreclosures added to the inventory, especially of affordable homes," said Trulia chief economist Jed Kolko. Foreclosure resales accounted for just 4.5% of all Bay Area resales this last February. To put this statistic into perspective, foreclosures accounted for 52% of all Bay Area resales in February 2009. In San Francisco, tenancy-in-common units were another affordable option for homebuyers, in which 2+ parties share ownership. These sales have also decreased drastically, from 724 in 2007 to 295 in 2014. The sale of 2-4 unit buildings sold as TIC properties have fallen sharply, perhaps because of aggressive changes to tenant-eviction law and condo-conversion laws.
  • Renting vs. selling: Because of skyrocketing rents and low interest rates, home buyers are opting to rent out their old homes rather than selling them.
  • Taxes: When homeowners sell their primary residence, they can exclude up to $250,000 in profit from capital gains tax. In pricier areas, the capital gains exemption is "just a drop in the bucket," according to Ken DeLeon of DeLeon Realty. Nowadays more homes are subject to the tax and the capital gains tax rate has increased from a maximum of 15% federal (9.3% in California) in 2012 to 23.8% federal (13.3% California). Rather than selling, some elderly homeowners have opted to stay in their homes until they die, thus wiping out the tax appreciation that occurred during the owners lifetime. Prop 13 also discourages homeowners from selling, as it states that homes are reassessed for property taxes only when they are sold or when the owner makes a substantial improvement. As long as owners stay put, their property tax cannot increase by more than 2% a year.