Don't Buy just Rent- Price has to come down another 20-40% in SoCal?

Asked by G, 91367 Fri Jun 6, 2008

In SoCal, for example a townhome around 1500 sq ft that was selling for $150K in 2000 reached around $600K at its peak and now listing for around $450-$490K. Sellers and agents are thinking its huge drop. How many ppl can afford and willing to pay half-a-million $$ for a town home. Only ppl who are able sale their exsisting homw for a huge proft. How many can even afford 20% down? Most are tsruggling to make a 3%-5% down, thats the reality. Cost of living have gone up like crazy between 2000 and 2008 and we all know the gas price. make a $2200 mortgage and add around $300-$400 HOA plus tax plus PMI, you have a monthly payment of more than $3200.

A townhome listed in Woodland Hills for alomost a year for around $500K, now listing for rent at $2500, no tenant for 3 mos. reduced rent to $2200 and still no tenant.

If you can rent it for $2200 why to pay $3200 monthly payment to own and all the headaches to maintain and repair. The price will adjust to income. Wait!

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Daniel Jeung’s answer
Daniel Jeung, , Woodinville, WA
Fri Jun 6, 2008
G,

Is this a question, or are you just making a comment about the current market in Woodland Hills? Given your scenario above, I would agree that it makes sense to rent the townhome in your example. My only condition to that answer would be: If that particular townhome is where you want to live. An analogy: If you want to buy and drive a Mercedes, but you can lease it for less, great! But don't end up leasing a Ford (or whatever car) if what you want is the Mercedes. The bottom line is that you shouldn't SETTLE for living somewhere you don't want just because it cost less (and you can comfortably afford something else).

-Daniel
0 votes
Bruce, Home Buyer, Woodland Hills, CA
Mon Jun 9, 2008
I completely agree with G and I think a reasonable price would be what they used to be around 2002.
I remember my colleagues kept telling me to buy a property since last 4 years ago and I kept telling them that the prices were ridiculously high. So maybe they saved a couple of dollars on the Taxes but in overall I feel I haven't really lost anything buy renting all these years and they lost me than me by having a huge depreciation on their properties.

It's funny that until 2006 whoever had 2 or 3 properties were considered as the "lucky" guy but these days the "lucky" has been replaced by the "poor".

Now whatever property I am interested, I set my price to the 2002 price. If that works good for me and if not I move to the next one.
3 votes
Ryan Burcham, Home Buyer, Los Angeles, CA
Fri Jun 20, 2008
Keep in mind, interest rates are still low and while you may save money on the overall cost of the house, interest rates will also be rising due to inflation.
1 vote
Dyanna, , California
Tue Jun 10, 2008
Thanks for the clarification "G".HAHAHA!! Good Luck with your home buying. I think you will find a great property, for a great price.

Dyanna
1 vote
Daniel Jeung, , Woodinville, WA
Mon Jun 9, 2008
Dyanna,

I'm confused by your comment. In one post you stated that you think G already made up his/her mind about buying (isn't this an assumption on your part?) In your 2nd post, you make an assumption that G is a female (another assumption?) and the comment that we shouldn't make assumptions. Based on the comment/question posted by G stating:

"If you can rent it for $2200 why to pay $3200 monthly payment to own and all the headaches to maintain and repair. The price will adjust to income. Wait!"

I interpret this to be a position that G is taking (renting) right now, and as I stated in my previous post, IF G can rent the SAME unit for less, and has the belief (and statistics) to show that prices will further adjust downwards, then it makes complete economic sense to rent for the time-being. The key word in G's post was "WAIT". G did not specify a timeframe (but you did in your post using 10 yrs), nor did G make the comment that buying was wrong.

There are lots of posts from Realtors just blindly stating that now is the best time to buy. For many consumers reading these posts, it smacks as self-serving unless we qualify our answers with other statements such as "it depends on your personal situation", or similar statements.

-Daniel
1 vote
Dyanna, , California
Sun Jun 8, 2008
G. Something tells me that you have already made up your mind about buying, but there are others that see the glass half full, not half empty. There are plenty of people that will pay $500,000 for a townhouse in Woodland Hills because that is where they want to live and they can afford to pay $3200. If you rent and pay $2200 a month for a townhouse, in 10 years the landlord will sell it and profit and you will get an eviction notice. If you buy now, in 10 years you can sell and make a profit. Which would you prefer?

Dyanna
1 vote
James McWhor…, Agent, Long Beach, CA
Sat Jun 7, 2008
Yes we all like to save money, but owning over time is much better than renting. Plus rents are going up 5-7 percent per year. Thats a huge bump in income for current landlords and more guaranteed expense for you. Example a new home purchased for $15K in 1965 increased to $525K by 1998 or +103 percent. Thats before the latest bubble and during long gas lines/odd even license plate days and 18 percent interest during the Carter administration.
So my conclusion is buy a home when your ready and can afford it. Make sure that no more than 30-35 percent of your monthly income is going to your home living expense. Save at least 10 percent of your gross income and maximize the 401K or savings accounts.
As much as I like to sell real estate I dont want to see you foreclosed or homeless. If the above makes you comfortable I am all for it but be sensible. "Something of your own is always better than something of someone else".
Good luck!!!
1 vote
Maggie Oreck, Agent, Studio City, CA
Tue Aug 11, 2015
It is a personal decision that needs to take many factors in consideration. Keep in mind that Interest rates are low which means you get more for your money. AT the end of depends on your own circumstances. It is not a black and white answer

Best of luck!

Maggie Oreck - Realtor
CalBRE Lic#01352758
818-906-8388
info@maggieoreck.com
http://www.maggieoreck.realtor
0 votes
Maggie Oreck, Agent, Studio City, CA
Sun May 31, 2015
We do not have the crystal ball. But the forecasts for the real estate are very positive with prices rising.
Also keep in consideration that the interest rates are low now and that help you to get more for your money.

Good luck!
0 votes
Alex Khalili…, Agent, Woodland Hills, CA
Fri Mar 13, 2015
Hello

prices seem to be going up and we haven't seen any signs of anything going down.

Please let me know if you have any other real estate-related questions!

Alex Khalilifard | Realtor - General Contractor
BRE License #: 01937591
Listing and Selling Agent
RE/MAX
Alex@TopHomesLA.com
Direct: 818.925.8088
http://www.TopHomesLA.com
0 votes
G, Home Buyer, 91367
Tue Jun 10, 2008
I was kind of thinking it loud. I was in the market to buy one home, but not sure now. If I find the right property for the right price, I'll buy, if not then will continue renting. I saw this beautiful single family house 2800 sq ft in Agoura Hills asking only $2600 rent. I may just rent one like that.

Thank you all for your input. btw-I'm a "HE".
0 votes
Newportfiji, , Long Beach, CA
Tue Jun 10, 2008
G, you make valid points. The election as to whether to rent or purchase, certainly has a business component. If rents are much cheaper than the price of purchasing a comparable property, renting can be justified.

The assertion that rents are going up 5-7% per year is inaccurate. In fact, even in some higher rent area, there is downward pressure in rents. Today, on the OC Register blog, they discussed how rents are actually FALLING in some markets, dropping 3.1%: http://lansner.freedomblogging.com/2008/06/10/big-oc-apartme…

Those self serving realtors predicting a dramatic and quick turnaround to this market to pressure you into purchasing a home right now are providing reckless advice. It is not always a good time to purchase real estate.

Apart from a few “the world is flat” realtors, everyone realizes that prices are falling. Those that are expecting a quick turn around from this bubble are dreaming. The last cycle took about 11 years to reach peaking pricing from the previous peak. Here are your Los Angeles County vanilla medians between 1989 and 2000: http://www.laalmanac.com/economy/ec37.htm

1989: $214,831
2000: $215,900

Pretty amazing, someone who purchased the “median home” for 214,831 sold for 215,900 11 years later. However, this bubble appears even larger that the 1989 run up, as depicted in the following graph: http://latimesblogs.latimes.com/laland/2008/04/where-we-stand.html . Granted prices are falling faster, so perhaps we can reach a bottom faster.

The reality is that residential prices will almost certainly be lower later this year, likely lower in 2009 and possibly even lower in 2010. Real estate cycles take many years to play out and we are at the early stages of a down cycle.

With that said, if you find your dream home and can purchase with a large down payment and conventional financing and don't care about prices dropping further, consider the purchase. But DON"T purchase with the expectation of future price gains for a long time. If history is any guide, prices will not rebound quickly when the bottom is finally reached.

Best of Luck,
NewportFiji
0 votes
Dyanna, , California
Mon Jun 9, 2008
Unless she states that in her question or comment...we can't assume. We all know what happens when we assume. She never mentioned anything about buying, she only made a comment about renting.

Dyanna
0 votes
Daniel Jeung, , Woodinville, WA
Sun Jun 8, 2008
I think G's question had more to do with the choice of buy now, or rent until the prices comes down further and then buy (that same unit I'm assuming).

-Daniel
0 votes
Paul Cruz, Agent, West Hollywood, CA
Sat Jun 7, 2008
Hi G,
Many people are waiting but for those who negotiate a price they are happy with, and can afford, everyday of home ownership amounts to tax benefits and equity potential that simply does not exist when renting. Some people prefer the flexibility of renting and build their personal wealth through investing, however, for the average person real estate is still a sure thing for the long term.
0 votes
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