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| 2004/7/27 [Reference/RealEstate] UID:32507 Activity:very high |
7/27 Buying a house in today's market: a totally insane thing to do, or
what? We're still thinking very broadly: considering both the SFBA
and the LA area, looking for a "buy and hold" house (we'd like to
stay there for a while), wanting to get a straightforward 30-year-
mortgage (now doesn't seem like the time to get an ARM). Should we
just suck it up and go through with it now, or wait around to see
whether gradually rising interest rates finally start deflating the
California housing bubble?
\_ there's a lot of good info below but he's the short answer: if
you live in an expensive place like the SFBA and plan to stay here
for many years then buying a house is the smartest thing to do
*over the long run*. Rents will continue to rise but your loan
rate is locked in. By the time you make that 360th payment it'll
cost you more to buy a cup of coffee but your rent will still be the
equiv. of whatever it is in the future in today's dollars. HOWEVER!
If you live in a place where rents are dirt cheap and likelt to stay
that way then owning is possibly a financial loss over time because
you'll be paying out in time for maintenance, etc. On the higher
priced home the maintenance costs will get sucked up by the rising
value of your home. That won't happen so easily on your low priced
home in a low priced area with slower price increases. The idea
that housing prices are going to take some dramatic dip soon is
foolish. I waited an extra year 5 years ago and it cost me $100k
up front. Since then my house has gone up another $260k and
continues to rise. Do the math.
\_ locking in the rate is overrated. you may change to a bigger
house, move to a different city in the bay area, or move to
a different region of the country, etc. average american move
once like every 7 years, so your 360th payment would likely never
happen. If Bay Area rent over price ratio is good, at least
you have the option of keeping the place and renting it out
(you get tax savings for first two houses). Unfortunately,
rent over price ratio sucks in the Bay Area.
\_ Don't so quickly dismiss the ability to borrow $3/4M at
5.25%.
\_ are you talking about a home equity loan?
\_ No, just look at what payments would be if you
end up borrowing the same exact amount at 8%,
the historical average for mortgages. Home prices
would have to fall a lot to make it equal.
\_ You can do all right with a duplex or triplex. Agreed
with a single family home.
\_ school choice and vouchers would go a long way towards rationalizing
the real estate market.
\_ You'd be an idiot to buy right now. Why buy when you can rent for
half of the cost?
\_ renting is just throwing money away. buy now and build
principle
\_ why do people keep saying this? for a typical loan,
the amount that goes to the principle for the first
the amount that goes to the principal for the first
5 years is very minimal.
\_ ARG! It's called equity, not principle! Second, the
\_ ARG! It's called equity, not principal! Second, the
interest is tax deductible.
\_ nah, it's principal. you don't pay equity,
equity fluctuates with the market.
\_ I have owned my house for 30 months. I paid the loan
down $10K in that time. Is that minimal? I am now
paying myself about $400/month in principle. As a
renter, I pay myself $0.
\_ the more important questions are, how much
interest are you paying per month, and how does
that compare with rental cost.
\_ How will it compare with the rental cost in 20
years when I have paid off the loan? The truth
is that I am paying myself money if the property
value remains level over 20 years and I am
making more money if it goes up. Renters are
deluding themselves. How many renters are
dumping $1K/month into stocks for the next 20
years? For those that are, what will they buy
with that money at that time? A house!?
\_ You have a point. If instead of paying for
the house, one would just spend the money
on entertainment, etc., or if one is a
very bad investor, then throwing all your
money at a house may not be such a bad idea.
it's a nice little forced savings plan for
the weak-minded and the investment-challenged
(or just conservative investors).
\_ Bingo! Although to that I'd say you should add
property taxes but deduct income taxed saved from
deducting the interest payments. If
CASH_TO_INTEREST+TAX-TAX_SAVING < RENT then you
should buy.
\_ if
(
+ estimated monthly investment income
from downpayment
+ monthly interest
+ property tax
+ association fee
- interest and property tax tax savings
)
<
monthly rent
then
buy
\_ You forgot that the property value will also
change. So you should really add:
- monthly_increase_in_property_value
\_ or decrease. also, add the "enjoyment"
factor of living in a nicer home of
your own, but also add the negative
factors of having to mow your own
lawn, and various repair costs, and
likely higher utility costs.
\_ Well, obviously it could be a negative
number, but in the long view (which the
OP wanted) it will probably increase.
Trying to quantify all the intangibles is
beyond the scope of this document.
\_ you are right. I do calculations
for my modest townhouse using a
2% annual increase. Am I too
pessimistic?
\_ Knowing nothing else: probably.
\_
The part of the equation you added,
"monthly_increase_in_property_value",
seems to be THE big question everyone
is now concerned with. The rest are
more predictable.
\_ Higher interest rates may bring prices down, but they'd also
increase your costs. If you're interested in buying, you might
as well start. -tom
\_ all things being equal, you would rather have high rate and
low cost than low rate and high cost. reason is, you can
refinance if rate later goes down. of course, if you need
a house, you need a house.
\_ Also, per chance you come across a large wad of cash,
you can pay off a larger percentage of the loan.
\_ dunno, if you got cash then go arm and wait, if not
prices won't fall that much but interest rates will rise by a point
if you wait too long
\_ Bay Area is pathological. SoCal still has bargains. Live in
Carson, or along the 10/60 freeway east of downtown, watch real
estate values go up. Don't buy the $700K 40-year-old 3-bdrm home
in West L.A. on a busy street.
\_ how much is an average 2 bdrm townhouse in LA these days?
what about 3 bdrm? What about Bay Area? - chicago sodan
\_ This guy is kidding if he thinks he can touch anything
in West LA for $700K. Irvine is $700K these days. The
average house is around $500K (same as Bay Area), but
LA is a big place. Where? Covina? Riverside? Torrance? OC?
\_ say Torrance, Hacienda Heights and OC. What the price
for townhouses there?
\_ I just did a lookup and a 2bdrm condo in torrance will
run you 300-400k. +100k if you want a 2bdrm townhome.
Try http://themls.com if you want to look at West LA. you can
find homes for $700k. my buddy just bought a 1700 sf
home in Inglewood for $450k (nice home, quiet area,
but about 90% African American).
\_ wow. I used to hang out around Torrance a lot
when I lived for a while with my uncle up on
Rolling Hills Estates. His city-facing home
used to be around 300+K (1996). Wonder how
much his 4 bedroom single family home (with
nice front and backyard) is worth now.
\_ The *lowest* house there is $610K and is 2/1.
By the way, http://www.dqnews.com has prices by
city and by zip code.
\_ Wrong, all in West LA:
http://csua.org/u/8cr 3/2 $620k
http://csua.org/u/8cs 2/1 $540k
Why do all these people in the motd
talk out their ass all the time???
\_ Beautiful Exposition Boulevard is what I
think of when you say "West LA". Get a
clue. $700K in West LA buys you nothing
in the way of SFRs. All those houses are
near the freeway. It's like saying you
can buy a house for $350K in the Bay
Area. Yeah, in Oakland. Technically
correct, but not really true.
\_ Yeah, they are sucky spots of West LA
that is why they are cheap. Hey, don't
be knocking Oakland! I just saw a
beautiful craftsman 2/1 for $429k there.
\_ I don't understand your first sentence.
\_ In the Bay Area, even the $500k houses seem pretty shitty
to me. There are some older townhomes in that range.
\_ I've been advised to look in either Valencia or Simi Valley.
Are those reasonable choices?
\_ You can find a house in Valencia for maybe < $500K but
the real question is: Where are you commuting to?!
\_ too many unpredictable factors. I would say, if you need a house
buy it. if not, save aggressively and wait a little while.
also, don't stretch your finances and leave a little margin, if
it is at all possible given the high property prices.
\_ so you are saying you think the housing market will cool down,
but if it doesn't, at least you'll have saved money for the
down payment?
\_ more or less. saving and investing wisely.
\_ what about buying a condo as an in-between home?
\_ it's a consideration, and a way to not put everything
in one basket, spreading your bets and hedging
against further price increases. What I would want
to find out would be how well the condo would appreciate,
how easy they can be sold, etc. I did something
similar, but it's a townhouse since I am in
a cheaper area (chicago). Chicago does have a
more reasonable rent to price ratio ($1200 rent
for a $200k townhouse) so renting out is an option
if I move to a larger place. It should cover the
monthly mortgage ++ cost. Tougher in the Bay Area.
But hey, Bay Area is so much nicer than Chicago!
\_ Condo's give you more house for your money and their
rent/buy price ratio makes them more sensible to buy.
\_ http://csua.org/u/8ce . Somewhat reasonable set of to buy or not
analysis from the Chron.
\_ Something a real estate agent told me that made a lot of sense:
The people paying $500-600K for cute 2-bedrooms in the SFBA are the
people most likely to be screwed. They will have their 2.1 children
and need to buy a bigger house. Meanwhile, for $700-800K they could
have bought a 3-4 bedroom or a duplex and rented some of it out.
The fact that very few people can qualify for a loan to carry a
7-800K house keeps these properties cheap relative to the much
smaller 5-600K places.
\_ The trick is to rent out 1/3 of your house, or put up with a
duplex, while still maintaining privacy and dealing with various
maintenance requests. Nevertheless, the point from the real
estate agent is valid, but the money to buy a $700-800K place
could instead be coming from your parents or similar avenues. |
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| www.dqnews.com -> www.dqnews.com/ Most Common Last Name: Garcia was the most common last name of homebuyers in California in 2002. Top Lender Update: Washington Mutual remained Californias most active home mortgage lender in 2003, followed by Wells Fargo Home Mortgage and Bank of America ranked by residential loan $. Least Expensive Communities: San Bernardino county has some of the lowest median home prices in the state. Most Expensive Communities: In the 4th quarter of 2003, the five CA cities with the most million-dollar sales were: Manhattan Beach, La Jolla, Newport Beach, Rolling Hills Estates and Hillsborough. Adjustable-rate Mortgages: California home buyers chose ARMs for 60 of their purchases in February of 2004. ARM usage was highest in the Bay Area and lowest in the Central Valley. Refinancing Boom: California residential refinancing activity in 2003 was up 46 from 2002. The fourth quarter of 2003 saw a slowing, down 26 from the same period a year ago. |
| csua.org/u/8cr -> guests.themls.com/search/profile_page.cfm?mls=04-057322&property_type=0&pass_la=Postgate%20Jr%2E%2CJohn%20William View larger image MLS Number 04-057322 2535 S BUNDY DR LOS ANGELES, CA 90064 Western Los Angeles NEAR SANTA MONICA AIRPORT, SHOPPING AREA AND FREEWAYS. Rooms: Breakfast Bar,Dining Area,Living Equipment: Built-Ins,Garbage Disposal,Range/Oven Presented By: John William Postgate Jr. |
| csua.org/u/8cs -> guests.themls.com/search/profile_page.cfm?mls=04-076828&property_type=0&pass_la=Corral%2CVeronica View larger image MLS Number 04-076828 11934 EXPOSITION BL LOS ANGELES, CA 90064 Western Los Angeles CHARMING HOME REMODELED KITCHEN & BATH. COPPER PLUMBING, UPDATED ELECTRICAL, TILE FLOOR IN KITCHEN AND LIVING AREA. |
| csua.org/u/8ce -> www.sfgate.com/cgi-bin/article.cgi?file=/gate/archive/2004/07/20/carollloyd.DTL Tuesday, July 20, 2004 Last week, I reported on the many-faceted debate that has been raging among economists, pundits and industry experts about the existence of a real estate bubble. Some people argue that there is just such a looming phenomenon threatening the economy, while others say high prices merely reflect a lack of supply. Still others speculate that prices might decline but don't believe the home-price boom is a bubble driven by the blind faith of buyers. Many on all sides of the debate agree that the market will correct itself over the next few years. The anti-bubbleheads, for example, believe home prices might not really go down but may stay flat, though inflation may in fact erode property's real value. Others, however, assert that prices in some areas could plummet as much as 25 percent -- especially in volatile markets such as the Bay Area. Quibbles and squabbles over the definition of a bubble aside, no matter how you label it, a substantial decline in the real estate market would make a difference to a lot of ordinary home owners and would-be home owners. Well, that depends on your finances and your home-owner status. So, instead of gathering more generalities about declining percentages, median homes prices and sales volumes, I've decided to crunch the numbers for three imaginary parties who have made very different choices over the past decade regarding housing. By reading how each of them would be affected in various ways by a declining real estate market of 15 percent over the next three years, perhaps readers can glean some sense from their own situation. Sally Sideline, who earns $80,000 per year marketing microwidgets, has been renting various apartments in San Francisco for the last 15 years. Currently, she pays $1,900 per month for her one-bedroom Nob Hill flat. While the real estate market climbed every year for eight years, she continually claimed she was waiting for the "other shoe to drop." With no children, little debt and an inexpensive used car, she's spent most of her money on an excellent shoe collection and a fine cabernet habit, but she's also managed to save almost $100,000. Despite this stash, she's leery of investing: She lost money on the Nasdaq drop and has sworn off overheated stock markets along with Bikram yoga. However, as interest rates begin to climb, she feels a sudden desperation. Should she buy a $500,000 condo now at 6 percent, or wait until home prices drop 15 percent and interest rates rise two percentage points? Well, if she used her savings as a down payment, she'd end up with a $400,000 loan at 6 percent interest, which would result in a mortgage of about $2,400 per month. With property taxes and insurance (another $550 per month), her monthly payments would add up to nearly $3,000. On top of this figure, she knows there will be unseen expenses -- loan-origination fees, maintenance costs, and, if she should ever sell her home, the 6 percent cost of selling. When she considers a few more factors, however, the picture changes. Because 30 percent of her income will go to federal and state taxes and her interest payments will be deductible, in essence, by the end of the year, she will have to pay only about $2,000 a month in housing expenses. Spending $100 a month more than she does now doesn't seem like such a bad deal, even if it means losing her liquidity and leaving her beloved apartment. But what if she buys and the market declines 15 percent over the next three years, and suddenly she has to sell? Obviously, that $100,000 down payment -- equal to 20 percent of the original price -- would essentially vanish when she factors in the selling costs of 6 percent of $425,000 -- about $25,000. She would have shelled out more for monthly housing costs and would then have lost all her hard-earned savings as well. But what if Sally doesn't sell, and the market goes down for three years for a total 15 percent decline and then returns to a 4 percent appreciation value over the next seven years? In addition, I added in various other guesstimated factors: $2,500 average yearly maintenance costs, $4,000 loan fees, 6 percent selling expenses. And, in case Sally chose not to buy at all, I factored in a monthly rent increase of 15 percent, $80 per month for renters' insurance and an interest rate of 35 percent on her bank account. In this scenario, a financial advantage to owning a home would exist only after seven years. And, by the end of 10 years, when Sally might sell her home, she would have come out about $28,000 ahead. What if she buys and the market continues to go up, amounting to an average increase of 4 percent each year for the entire 10 years? She would begin to obtain a financial advantage after two years, compared to renting -- and, by the end of 10 years, she would be $183,000 ahead. Finally, what if Sally were to successfully time the market -- that is, buy low? What if she buys three years from now, after the precipitous 15 percent drop, but just as the markets are rising? Now, say, instead of a 6 percent interest on a 30-year fixed mortgage, she's facing an 85 percent interest rate and a $425,000 purchase price. Within seven years, she would be $86,000 ahead of renting, but she would have spent three years paying about $2,000 per month to rent previous to buying, an expense of almost $75,000. These added years of renting would have substantially offset the value she accrued by timing the market so perfectly. In the end, if she can commit to buying and holding for a decade or more, and the market drops but then resumes its appreciation after a few years, it's really a bit of a wash. In this scenario, she wouldn't need to be a raging bull to choose to buy now. Colin and Carrie Cashout put a $120,000 down payment on a $600,000 three-bedroom Noe Valley Victorian in 1999 when she was the proud mother of a dot-com newborn and he was slinging office-lease contracts for a local commercial real estate firm. Since then, however, the flow of cash in his office has changed from a deluge to a trickle and is generating what might be generously called a thin stream of revenue. Meanwhile, his wife's infant company has died an untimely death, along with most of their liquid assets, which she had invested. She has now abandoned virtual babies for real ones, giving birth to twins with a little help from Clomid at age 42. Now, their monthly bills are growing with their happily fattening offspring, and Colin's job is increasingly taking its toll on his identity. Having been invested in the land of surreal estate for much of the previous boom -- though they were sure they were buying at the peak of the market then! They don't want to move until the twins are older, but, they ask themselves, should they sell now, before the bubble bursts? They could sell their home for $12 million, walking away with almost $750,000 in cash (combining their original down payment of $120,000, their $600,000 in profit and their paid-off principal of about $30,000). They will have to pay some taxes on capital gains -- but only on the profits over $500,000 -- that is, only 30 percent of $100,0000, or $30,000. Though they could wait, it's hard to find a financial reason to do so unless they plan to return to the Bay Area soon. three-bedroom home just outside Boulder with a few acres, a seasonal creek and a view of the mountains, they can reduce their monthly expenses by about $600 to $2,200 by simply reinvesting their original $120,000 down payment. Then they can invest the remaining $600,000 for their children's college fund and their own retirement. Should they just buy the home outright and reduce their monthly costs to zero? That decision, of course, depends on whether their cash investments beat the interest rate on the new home. And, because of tax breaks, many financial advisers suggest that borrowing money at 6 percent interest makes sense even for those who might be able to afford to invest all cash. Because of the mortgage-interest tax break, they don't need to earn 6 percent on their cash to make up for the loss. If they pay, say, 40 percent in state and federal taxes, they need to earn only about 36 percent ... |
| themls.com -> www.themls.com Los Angeles Real Estate The Los Angeles Westside Combined MLS provides the most up-to-date and complete real estate listings for the Southern California county of Los Angeles. The mission of The MLS is to serve both Realtors and home buyers with the information they need to participate in the dynamic real estate market of LA. The Los Angeles Westside Combined MLS covers the entire Los Angeles area including the neighborhoods of Santa Monica, Brentwood, Beverly Hills, Glendale, Hollywood Hills, Wilshire, Los Feliz, Playa Del Rey, Marina Del Rey, Pacific Palisades, San Fernando Valley, Burbank, Culver City, Malibu, and Venice. More Los Angeles real estate information Use our searchable database to begin your search for Southern California homes for sale. The database allows you to search by neighborhood, price, and size to help you narrow your search and locate homes you'd like to see. Our Realtor Roster allows you to search for member Realtors and firms in the Los Angeles area. Our newest feature allows you to search Open House listings. Count on the LA/Westside Combined MLS for the most up-to-date information on the real estate industry in Los Angeles and Southern California. |