Greg, be very cautious about purchasing a property right now in Sherman Oaks.
Apart from a few â€œthe world is flatâ€ realtors, everyone realizes that prices are falling and will likely fall for several years. 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. In fact, prices didnâ€™t bottom out until EIGHT (8) years after prices began to fall and we are only about 2 1/2 years into this crash. Here are your Los Angeles County vanilla medians between 1989 and 2000: http://www.laalmanac.com/economy/ec37.htm
Pretty amazing, someone who purchased the â€œmedian homeâ€ for 214,831 sold for 215,900 11 years later. Following the previous downturn as a guide, we can expect to see 2005 prices again sometime in 2016.
Consider someone who purchased the â€œmedian homeâ€ for 214,831 and sold for 215,900 11 years later. You might argue this is a gain of $1,069 but this is erroneous as there are large transaction costs associated with a home sale. Thus, assuming 8% closing sale costs (commission, escrow, title, repairs, covering buyers costs, ect..), this purchaser would incur $17,292 in sale costs or would net $198,608. A LOSS OF $16,223 ON THE SALE OF A HOME PURCHASED 11 YEARS EARLIER. But the loss would be even greater, as the â€œinvestorâ€ would have incurred maintenance expenses over the 11 year period and the monthly homeownership expenses (even with tax advantages) would exceed rent for a comparable home. Someone would have done much better financially, by renting during these 11 years and put the money they saved into the stock market over these 11 years.
Understand, this situation was actually worse, as the average home was larger and had more amenities in 2000 than in 1989.
The risks of losing home value is even greater for purchases made today then in the early 19900s. The housing bubble in 1989 -1991 was nowhere near as large as to what we experienced in this bubble. Here is a LA Times graph to showing how immense this bubble is and how quickly prices are falling: http://latimesblogs.latimes.com/laland/2008/04/where-we-stand.html
Granted prices are falling faster, so perhaps we can reach a bottom faster. But, with only a five year time horizon, you are at risk that you will lose money on this purchase, especially when factoring in transaction and carrying costs.
In my opinion this would generally be a terrible time to purchase. All leading indicators are pointing in the same direction as to the southern California market, (i) inventory has increased, (ii) sales transaction volume has slowed dramatically, (iii) lending standards have tightened (pulling thousands of potential buyers from the market), (iv) notices of defaults and foreclosures are at records levels, (v) the economy is slowing (looking more and more like a recession and perhaps a deep one), (vi) literally thousands of high paying mortgage and other real estate related jobs have been lost in southern California over the past year and (vii) the mania which surrounded the real estate market a few years ago has been replaced by a conservative caution steering people to other investment classes. All of these factors will directly or indirectly put downward pressure on pricing.
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.
Best of Luck,