Home Buying in Sherman Oaks>Question Details

Barbara Gran…, Home Buyer in Sherman Oaks, CA

With stocks sinking and bad unemployment figures, surely a chain free buyer (currently renting) should wait

Asked by Barbara Granatt, Sherman Oaks, CA Fri Mar 7, 2008

6/12 months ?

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19
I’d wait longer.

The argument that rent is money down a rat’s hole is a terrible one. It's based on a very faulty premise; that premise being that real estate values always goes up. Pick up a newspaper and you’ll see the truth staring back at you. It doesn’t; but some people were absent the day that memo went out.

Sure, there are the “intangibles” gained by owning – but at the end of the day housing is a consumption good and the TRUE value of a house is what it will rent for. Just like a stock is worth the net present value of its dividend payments. The same holds true for housing.

There are times, like now, when the capital you invest in real estate can, and will, have a negative return. Google “rent buy decision.” You’ll find a wealth of information. Executive summary: when it becomes cheaper to own versus rent, then you’ll know the market has corrected sufficiently in your area.

Sure, if your investment horizon is long enough, you’ll come out ahead in nominal terms. That being said, the unwinding of the greatest credit-driven speculative asset bubble in human history has just begun. Historically speaking, the recessions brought upon by asset-manias tend to be protracted. Plan accordingly.
5 votes Thank Flag Link Fri Mar 7, 2008
This downturn today looks to be three times as bad as the recession in the real estate market that rocked CA between 1991-1996. The amunt of forclosures has already topped the previous highs set in 1996 and we are stil early in this downturn based on all the current statisitics I have reviewed. Prices will more than likely fall for another two or three years before hitting bottom and then the market will trade side ways fo a number of years.

You also need to remember in the early to mid 90's our economy was in much better shape than today and our gas prices were only around 1.20/gallon. Incomes are falling today when you take into account inflation and everything else seems to be going up in price such as: gas prices, healthcare, tutition, food prices etc..............You wonder why all these buyers were taking out these teaser rate mortgages, interest only and adjustable rate mortgages because that was the only way they could afford these homes. Always remember what goes up eventually comes down - Trees do not grow to the sky!:)
4 votes Thank Flag Link Sat Mar 8, 2008
Karen - the "buy now before it's too late or you'll be priced out forever" line might have worked on the way up. But, as you will find out, it won't on the way down. Nobody wants to try to catch a falling knife; and least the sane among us. An environment that is characterized by tight money and inventory oversupply will result in a price that is lower than a normal market would sustain.

Maggie - I concede that real estate is local - and your market - L.A. is heading off a cliff. The excesses that drove this mania had it's epicenter in places like California. If you pay more in rent on a place in L.A .then you would in PI&T on the same property, then I have a lovely bridge that I'd like to sell you in Brooklyn.

Good luck to all.
4 votes Thank Flag Link Sat Mar 8, 2008
Price declines are just getting started. Anyone buying now will be very sorry. Prices will go back to 2004 levels at a minimum. Be patient and watch the pain from the sidelines.
3 votes Thank Flag Link Mon Mar 10, 2008
Barbara,

Noone can "surely" answer your question. Anyone who insists they know when is the right time to buy is just blowing smoke!

Those of us who have been in real estate for a while know many people who "missed" the last market bottom & ended up paying sometimes $100,000 over what they could have paid because they were waiting for the market to fall & it did the opposite. I would hate for that to become your story.

That being said, we currently have great inventory & great interest rates for those who qualify. You have the luxury of being "chain free" which allows you not to be rushed.

You should find a good local Realtor to work with keeping in mind that as buyer you have the negotiating upper hand. Buy when you find a place where you truly want to live!

Best of luck,

Karen Miller
3 votes Thank Flag Link Sat Mar 8, 2008
Oh - I didn't see the population growth argument. Even better.

If the population is growing so fast, why are there over 2 million vacant homes out there? And that's a 2006 number - the true number is much higher. Between 2004 and 2006, we built 0.75 houses for every new adult in this country. 0.6 is the norm.

During the past two years, four million new units were built, while there were only two million new families.

Supply and demand. At their intersection you will find a train-wreck.
3 votes Thank Flag Link Fri Mar 7, 2008
Dot,
The error in the Times article is their calculation for a 10% drop in price. The original article said at $197,010 @ 6% = $994.94 per month. If you cruch the numbers, the monthly @ 6% is $944.94. Although it's just $50 less per month, the article makes it appear as if it is more expensive to wait. The difference is a savings of $22,152 at the end of the loan, principle+interest. The Times has later amended their article to readjust for 6.5%, which they say is $994.94 (my calculations come to $996.19).

That article in relation to SoCal sounds much different, the median LA home price is nowhere near as low as the national median, i.e., 10% of the national housing average is ~$20,000 and 10% of the LA average ~$100,000.

Barbara,
Who knows when the market bottom will be. Do we use the 80s and 90s boom/bust figures? Due to the unprecedented housing increases, are we at a new index of high prices? If so, banks need new lending products to make the current market pricing economically feasible. Somehow, I just don't see that happening. Interest rates are still relatively low, although they seem to have somehow disconnected from the 10 year treasuries. The fed rate cuts have done little to affect interest rates as banks are more nervous lending until they shore up their capital reserves. The recession (or alleged recession if you don't believe it) isn't helping matters.

I'd say its a good time to look but not buy, unless you can get a great deal. Just beware, depending on where you are looking, I've seen sellers overpricing by 20-25%. My guess is that some people are having a hard time letting go of last year's prices or can't afford to sell at market.

PS. I just moved from an apartment in Santa Monica (2 bed) for $2200, and moved to Pasadena (2 bed) for $1400. Both are really nice, clean apartments in nice neighborhoods. I've seen no purchasing options cheaper than my rent. You'll generally pay higher rents in LA to owners who have can't sell and are renting their places out to cover the mortgage. If you're a smart renter, you'll avoid these people.
2 votes Thank Flag Link Mon Apr 14, 2008
The Time Article submitted as .pdf from Dot Chance is false. I've seen several realtors passing this around over the last few months - even some that have printed a modified version for the their marketing materials. It's funny the she included a .pdf of the original instead of the real-time link:
http://www.time.com/time/magazine/article/0,9171,1713483,00.html

Note:
Due to an inputting error in information supplied by Lending Tree, the original version of this article contained incorrect data in an example assessing the relative cost savings of buying a home today or waiting a year for the housing market to drop 10%.

Inputing error from Lending Tree? haha.

It seems like popular opinion from Realtors that the negative media is driving the crisis. This is a conspiracy theory. All you have to do is look a the housing fundamentals and you'll get your answer. Try here: http://www.patrick.net
2 votes Thank Flag Link Sun Apr 13, 2008
One thing none of you mentioned is.....the loan situation is changing daily. if your loan package is good and solid, and approved and you find the house you like alot...buy it. Otw you may not get as good a loan 6 months down the road. If your going to live in the house for the long haul....so what if prices dip, ride it out. I don't believe in la its a dooms day situation.
2 votes Thank Flag Link Sun Mar 9, 2008
Barbara.....

I wish I had the crystal ball.

What I do know is there some pretty fantastic buys out there with very palatable interest rates. There are many first time buyer programs that provide layers of downpayment and closing cost assistance.
2 votes Thank Flag Link Fri Mar 7, 2008
Pam Winterba…, Real Estate Pro in Danville, VA
MVP'08
Contact
Even if one ended up paying $100k more than the rock-bottom price, it would still have been profitable if the person sold out at the peak of the current bubble. The swings in LA real estate in the late 80s bubble were huge. See the link for the history of it, in headlines.
1 vote Thank Flag Link Mon Mar 10, 2008
Barbara, here is a link to an interesting article that was sent to me this week. I believe it is from Time Magazine, February 25, 2008.

http://www.swiftpage3.com/RogerHance.RogerHance/C08030517490…

Dot Chance
The Chance Team
Keller Williams Realty Studio City
Web Reference: http://www.DotChance.com
1 vote Thank Flag Link Sat Mar 8, 2008
While i appreciate your "global" answer to Barbara's question, I can tell you that in Los Angeles County California you can pay rents that are HIGHER than a mortgage, especially here in Long Beach where home prices are affordable. All real estate is local and citing national numbers to Barbara's question which is based on Southern Caliornia is truly comparing apples and oranges.
Web Reference: http://maggiehomefinder.com
1 vote Thank Flag Link Sat Mar 8, 2008
Hello Barbara,

There is a risk to everything, but one thing I know in this tax season...the only true deduction you can get is still the interest on your mortgage. One other thing I know too...renters help their landlords pay their mortgages each and every day...most landlords acquire more properties...why? Because over the long term real estate is still one of the soundest investments you can make. Most people that own a home will tell you that if you hold on to it long enough...more than 5 years...you will see appreciation and build equity. So, I would encourage you to get the facts, be alert and POUNCE on the very best deal you can while interest rates are at 40 year lows and home prices are attractive. To support my advice here are some projections in the population growth of Southern California by 2050:


These are projected to be the state's five largest counties by population at midcentury:
1. Los Angeles County: 13.06 million
2. Riverside County: 4.73 million (up from fourth)
3. San Diego County: 4.51 million
4. Orange County: 3.99 million
5. San Bernardino County: 3.66 million (ranking unchanged)
Source: California Department of Finance


Currently, LA county is at around 10 mil, riverside around 2 mil, san diego around 3 mil, orange around 3 mil, san bernardino around 2.5 million. Even by 2018 you'll be wishing you bought back in 2008!
1 vote Thank Flag Link Fri Mar 7, 2008
I don't know that anyone can tell you "surely" what will happen in the future.
1 vote Thank Flag Link Fri Mar 7, 2008
Deborah Madey, Real Estate Pro in Brick, NJ
MVP'08
Contact
Jeff, your comment:

"The Time Article submitted as .pdf from Dot Chance is false. I've seen several realtors passing this around over the last few months - even some that have printed a modified version for the their marketing materials. It's funny the she included a .pdf of the original instead of the real-time link:
http://www.time.com/time/magazine/article/0,9171,1713483,00.…

I passed the link along that I received from an escrow company. Please tell me specifically what you found to be false so that I can notify the escrow company and so that I won't pass around the info to anyone else.

I would never knowingly pass around anything that is false if that is what you are implying.
Web Reference: http://www.DotChance.com
0 votes Thank Flag Link Sun Apr 13, 2008
If no one else in your are can afford a house on a traditional mortgage, prices aren't likely to go up. My opinion is that you are in a renting position (probably for 1/2 of buying) then keep waiting and put the difference in a down payment fund. You're gonna need some down payment in 6-12 mo.
0 votes Thank Flag Link Sun Apr 13, 2008
If you have a reason to buy then you should buy. If you do not have to buy then you have options which is a good position to be in. Please check out the following links (one is the article from the Time website and the other is a pdf of the actual article) that gives a different perspective to consider: http://www.time.com/time/magazine/article/0,9171,1713483,00.html http://www.condometropolis.com/blog/images/time%20article
When you are ready to buy please give me a call (818) 422-1702. I live and work in Sherman Oaks since 1996.
0 votes Thank Flag Link Sun Apr 13, 2008
You need to make sure that it's not going to have an effect for the short termer.

On another note, FDP Capital, thanks again. Couldn't have done things without your company.
0 votes Thank Flag Link Sun Mar 9, 2008
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