Ryan Serhant, CEO of Serhant, states the U.S. tax code locks homeowners in place, stifling housing market mobility. In a recent interview, he highlighted how outdated capital gains rules prevent sales amid high mortgage rates. This “lock-in effect” keeps inventory low, driving up prices for buyers.
Outdated Section 121 Exclusion
IRS Section 121 lets married couples exclude $500,000 in capital gains from primary home sales, set in 1997 when median U.S. home prices hovered around $144,000 to $175,000. Today, with median prices over $400,000, most sellers exceed this limit after years of appreciation. Empty nesters stay in large five-bedroom homes because selling triggers big tax hits they can’t afford.
Serhant notes 90% of home loans carry rates below 6%, mostly locked in at sub-3% or 4% from pandemic lows. Moving means new loans above 6%, doubling payments on pricier homes. This combo, tax penalties plus rate shock, explains why listings rose just 15% year-over-year in October 2025, not the 46% some reports claim, with many pulling back fast.
Housing Market Lock-In Impact
Nationwide, listings grew 15.3% year-over-year through October, but new listings only up 5.1%, showing sellers hesitate. Markets like Miami, Denver, and Houston see the most drop-offs as owners fear lower post-COVID prices or high replacement costs. Serhant calls the market “not broken” but designed for scarcity, rewarding those who stay put.
High rates hit 81% of mortgaged owners below 6%, per recent data, freezing trade-ups and downsizes. Seasonal factors and seller ego play roles, but policy flaws dominate. Cross-checked stats confirm median 1997 prices near $150,000, making today’s $500,000 cap irrelevant for coastal or urban gains.
Reform Calls for Capital Gains
Serhant pushes for raising the exclusion to $1 million to unlock inventory without crashing prices. Rates won’t drop prices; more supply will. Lawmakers recently discussed tweaks targeting first-time buyers, too. Modernizing Section 121 could free homes for millennials, ease affordability, and boost sales without subsidies.
Serhant’s firm, with 1,500 agents in 14 markets, sees this in client talks daily. Tax code changes could spur 2026 mobility as rates ease slightly. Homeowners weigh taxes, rates, and costs; policy shifts offer the fix. – CNBC
Image Credit – storeys.com
