A Paradigm Shift in Home Buying ?
Going into the third year of market corrections, a new mindset about buying homes seems to be emerging. No longer are there thoughts of netting 6 figures in buying a home and selling it 2 years later. We can attribute this to the extinction of the no doc liar loans that fueled the stratospheric rise in home prices. Homes became priced as investment vehicles and ATMs, as opposed to a place to live in. In 10 years the price of a home doubled or even tripled in some cases. Looking at historical appreciation, a 40% increase instead of 100-200% appears more realistic.
So where does that leave us now? We have entry level homes starting at $750K on artificial life support via gov't intervention. Banks are extending and pretending, but not lending, jobs are scarce, and more homes turn upside down each day. Most who bought from 2005 - 2007 would come out with a loss after taxes, maintenance and sales commissions. For those who believe we are at the bottom, buying today means barely keeping up with inflation (if their lucky) over the next 2-5 years, minimum.
With the housing casino gone, that means people are forced to buy based on income, sizable down payments and what they can truly afford. In other words, probably 2/3 of the inventory (both shadow and listed) will not sell, unless the banks foreclose, short sell, or cram down the principal. Fat chance, when banks keep extending and pretending, while encouraging more buyer defaults and walkaways. Eventually, that's a ton of inventory for the market to absorb at reduced prices.
Sure, you will hear the stories of multiple offers this spring, due to the limited amount of owners with equity, actually selling. This will appear as if the market has picked up, trumpeted by the real estate industry and media . The keys to watch will be 1) Sales Volume and 2) Prices per Square Foot. Most buyers will continue saving for down payments and renting at half of the mortgage price, without risking their hard earned cash. Once again, their purchases will be based on what they can afford and not some creative loan scam trying to slam dunk them into a house. The days of $0 down, Interest Only for 2 years, and easy credit are GONE!
As the paradigm shift occurs, business will eventually return to normal, with homes selling again at reasonable prices, based on reality (verifiable income, down payment and good credit required).
Posts
58 comments:
We are not alone -- those with $$ to buy a $1.5-2.5mm place, renting nice places in great neighborhoods. We may one day be buyers, but only if prices drop into reality with our incomes. We will not buy if they don't. So, maybe others will cave, but in our case, it is not a "waiting game" that sellers can win by holding on longer. We simply will not buy until prices make sense. No need. If others behave as we are, then nobody will buy. And housing prices will fall as the owners get divorced or pass on.
http://www.firstrepublic.com/lend/residential/prestigeindex/losangeles.html
High-End LA housing price chart -- what will the 1st Qtr. of 2010 show?
Let me update that to reality for you...
We are not alone -- those with $$ to buy a $1.5-2.5mm place, renting nice places in great neighborhoods. We may one day be buyers, but only if our incomes rise into reality to meet with market prices. We will not buy if they don't. So, maybe other buyers will pay, but in our case, it is not a "waiting game" that we can't win by holding on longer. We simply will not buy until we make more money. No need. If others behave as we are, then prices will stay stagnant as incomes rise. And housing sales will fall as the few sellers will be owners who get divorced or pass on.
and despite all the wailing and teeth gnashing about how the recession was gonna knock rents back into the stone ages, here in LA rents rose once again.
http://www.nhc.org/pdf/Rental_Rankings0809.pdf
can we have more info on rents north of montana?
so far it seems like the rent on most houses i look at is a monthly rent of .5% of the sale price
in other words a two million dollar house rents for ten grand and a three million dollar house rents for fifteen grand
can we have more comments from people actively looking at rental houses
i hope rental prices come down but want to see what other people are noticing
408 20th is renting for $5,900/month.
Here here LS!! I couldn't agree more. As for rents, I rent a $2.5 million (?) place for $4,500! What a joke current prices are. Salaries, if you have one, haven't gone up, and prices are dropping preciptitously. I'm hanging on to my downpayment....
Thanks. Let's all help each other - each time we see a rental in the 90402 let's post it here
rents are lower -- $10,000 for what today may be (??) a $2.0mm property in very nice condition is still toward the top of a $6,000-$10,000 range.
To Anon. from April 2, 2010 9:26 AM:
you are missing the point. It does not matter if the base rent for 2BR apartments goes up a little, because it would have to DOUBLE before it makes even a dent in the rent vs. buy calculation.
In LA, you can rent for 1/2 of what it costs (COSTS, in CASH) to own every month. If housing prices are not RISING steadily (and they certainly are not doing that and have no prospect of the same for a while), then it makes no sense to buy -- at least if $$ are the deciding factor. This is true whether or not you need a loan or can pay all cash. Many renters have the money - and some can even pay all cash for a $2+mm place. But they are not. And they won't.
Sellers, get real now, or just enjoy your property. That is your choice. But fools are a lot harder to find these days. Sorry.
I've been tracking rents--or, rather, asking prices for leases, NOM and NOW because I'm planning to ask my landlord to reduce our rent. Some highlights:
1616 San Vicente 3/2 $5500
415 14th 3/1.25 $5000
340 21st St. Place 3/1 $4500
728 26th 3/2.75 $4950
316 20th 3/1 $4500
1064 Harvard 3/2 $5900
1101 Harvard 3/2 $4900
328 18th 3/2.75 $6300
While only that last one is a $2k house, many of the others would probably ask $1.8 if they came on now. The ratio is absurd.
Can anyone comment on the % difference between asking rent and what leases are actually getting done at?
"Anonymous said...
To Anon. from April 2, 2010 9:26 AM:
you are missing the point"
Actually, no. I dont disagree rent vs buy doesnt make sense (hasnt in a long time). Im just recalling all the shrill voices of yesteryear who used this site to tell us that rents were gonna CRASH and CRASH HARD - boy were they wrong.
"LS2009 said...The days of $0 down, Interest Only for 2 years, and easy credit are GONE!"
And yet the high prices remain. Stupid buyers - how dare they use their cash and incomes to support prices!!!
"And yet the high prices remain. Stupid buyers - how dare they use their cash and incomes to support prices!!!"
For now. But we all know that's thanks to the backing of the government and the Fed using up every single trick in the book, and what has it resulted in - the market is STILL flatlined.
All they've done is prevented it from cratering in the high end. As for buyers using their cash and incomes, please!
LA may have a substantial amount of affluent and wealthy people, but the median household income is still what, $50K? $60K at best? Certainly higher N. of Montana per capita, but does it even break $100K per household? 10-20x median income is unsustainable...it's only a matter of time...dragged out by government interference and manipulation, but inevitable nonetheless. The 90's downturn is the perfect example - the ghetto and crappy areas were hit fast and hard, bottoming out within 2-3 years, but the prime areas like Beverly Hills, Westwood, SaMo etc. LOST THE SAME % FROM PEAK TO TROUGH AS THE MID AND LOW RANGES...it just took a few more years.
"And yet the high prices remain. Stupid buyers - how dare they use their cash and incomes to support prices!!!"
Not really. First of all, even the top of the top is down 10-15% or more since the peak with the easy money. You are correct that prices remain high so far, though -- we are down from space-shot to merely insane. But check the volume of sales. A few sales here and there is not really a "market" -- it is a showdown awaiting price discovery. And most of us expect that the price discovery will reveal MUCH lower pricing.
Prices are still very high, even rentals are pretty highly priced too. It's jobs that bring people to an area and LA has been failing on that front for years. Businesses are leaving LA and those that are staying, are finding cheaper ways of doing business ie outsourcing, minimal staff, contract workers, temps. This does not bode well for future population growth of the area and future demand for housing.
I think a lot of the people that don't believe in the bubble popping are the trust fund set so common in LA. I knew many of them when I lived down there and talking in money terms was very abstract for them. They didn't understand where money came from but yet didn't want to be made to look foolish when it came to financial decisions.
I used to work for a very well-connected and successful entertainment industry executive. Back in 2004, when he said he would leave LA because it was too expensive but couldn't due to his career being located there, I realized prices had gone insane. Imagine that, a guy who made a million bucks a year couldn't afford LA.
"10-20x median income is unsustainable...it's only a matter of time..."
Has been uttered by frustrated buyers in NYC using this metric for 20 years now. I wonder if "the inevitable" will happen before they die?
I spoke with realtor friend this week. She would not recommend anyone putting a house on the market right now in Santa Monica if they absolutely did not have to sell. The buyers in the market right now are looking for as much value as possible, and really making the deals painful to close.
Sounds like the people who are ready to pull the trigger are a bit scared themselves!!!
So I've been actively looking under the $1mil mark and have put in 2 offers and was about to put in a third this week. Sadly, what I'm experiencing, is that there are a TON of people out there with loads of cash making cash offers over list price. I was going to put another offer in this week on a place in Mar Vista - but there are 3 cash offers over asking and another cash offer was expected to come in. I also have a friend who recently sold a townhome for $50k more than she bought it in WLA in 2007. She had multiple cash offers. Where's the cash coming from??
"And most of us expect that the price discovery will reveal MUCH lower pricing."
If thats true then "most of us" will be very very disappointed.
If thats true then "most of us" will be very very disappointed.
You know, I am a bear, and I will agree with this statement. I believe that housing weakness will continue for a very long time. Even though prices will trend lower, it will not be huge. Maybe 10% drop or so. However with that said, I don't think housing prices will appreciate the ways it has been going for the past decade either. So the argument of "buy now or be priced out," does not hold water with me.
"So I've been actively looking under the $1mil mark .... there are a TON of people out there with loads of cash making cash offers over list price.... Where's the cash coming from?"
The government - super cheap loans (or the prospect of super cheap re-fi loans) up to $729,000. If you were looking at the $2mil market instead of the $1mil market, you would be able to take your time! The super cheap loans may go away -- be patient.
Agreed. With the country in massive debt, sooner or later the gov't support must be pulled to pay for other things, such as health care and job promotion, not to mention social security and medicare.
Wait, what is it I see, isn't that the housing credit fading away, and no more buying of mbs securities? This is hilarious. Assuming no more nonsense from the gov't, we're going to see some massive corrections. Wait, what is it I see, lots of houses underwater in SM.... I say let 'em sink and move the ownership to responsible persons.
"Assuming no more nonsense from the gov't, we're going to see some massive corrections."
Ladies and gentlemen, I give you, quite possibly, the biggest assumption ever made in the history of home price predictions...
Even if there is nonsense from the gov't, there will still be massive corrections. It is just going to take longer. Because it will take longer, the corrections will be less dramatic in any particular year. In the end, prices must match up to incomes and rents, and the corrections are coming. Maybe we will go the Japan way and real estate prices will decline slowly over the next 10 years. Nobody knows for sure. In any event, it would be highly unwise to buy in the current market if you are looking for any type of return on your investment.
Of course, we're not talking the lower end of the market, which has already seen massive corrections.
"Even if there is nonsense from the gov't, there will still be massive corrections. It is just going to take longer. Because it will take longer, the corrections will be less dramatic in any particular year. In the end, prices must match up to incomes and rents, and the corrections are coming. Maybe we will go the Japan way and real estate prices will decline slowly over the next 10 years. Nobody knows for sure. In any event, it would be highly unwise to buy in the current market if you are looking for any type of return on your investment."
Just as plausible an assessment:
Since there will be nonsense from the gov't, there will be no more corrections. It is just going to take a long time as incomes and rents rise to match prices. Because it will take longer, the govt support will continue for years. In the end, prices must match up to incomes and rents, and the increases in rents and incomes are coming. Maybe we will go the traditional inflation route and wages and rents increase slowly over the next 10 years. Nobody knows for sure. In any event, it would be highly unwise to look for "massive" corrections in home prices given the govt's hell bent proposition to support them at all cost."
Okay, let's see if they restart MBS purchasing or extend the credit....
Also, do you even understand what you are saying? Basically, what you're saying is that prices in real terms are going to decline, just even more slowly. Either way, the mid and upper tier markets in So Cal are doomed. Either it's quick (2 to 4 years), or Japan style, or your way which could be 20 years. Bottom line is don't waste your down payment on a house when you can rent for half the price.
Blog readers interested in So Cal mid and upper tier RP: Beware of realtors and underwater home owners trying to convince you that "now's a great time to buy." They only want to make a commission or fool you into buying their overpriced houses.
"Either way, the mid and upper tier markets in So Cal are doomed."
Doomed huh? Lets think about that again, DOOMED!
So in a situation where prices stay firmly at 1.3 million, going neither up nor down while inflation lets incomes and rents catch up, the homeowners are "DOOMED"???
Lets say 10 years ago, someone said to SM buyers - ok heres the deal, home prices will shoot up from 700K to 1.3M in 5 years, and then they will stagnate at 1.3M for another 10 years - im sure the buyers of 2000 would say, hell no, I wont agree to massive gains followed by a period where no-one is underwater - why that would be...DOOOOOOOOOMMMMMMM!!!!!!!
"Basically, what you're saying is that prices in real terms are going to decline, just even more slowly. Either way, the mid and upper tier markets in So Cal are doomed."
If people were looking at homes not as an investment, but just as a place to live, stagnant nominal prices isnt a problem. Just sayin...
Mortgage rates up .25%
Rents down YOY 1.5%
If one were to purchase a house now, and the price remained stagnant while all other prices and wages rose, then the house's value has declined in real dollars. If you don't understand this you need to take a basic economic class. Of course, prices aren't going to remain stagnant, they have declined and are going to continue to decline likley for the next few years, if not decade.
A place to live can be owned or rented. Why would any rational person spend more to buy than to rent? In this market, the downpayment would likely be effectively lost, as would the income that the down payment could generate. There is also the value of mobilility, something a renter has that an owner does not.
So in a situation where prices stay firmly at 1.3 million, going neither up nor down while inflation lets incomes and rents catch up, the homeowners are "DOOMED"???
Sounds like someone who refuse to see things for how they are and not how they want them to be. Stuck with a house you squeezed yourself into and can't sell? Let me ask you this, would you put $1.3 million into a 10 year CD with 0 interest rate? Interest rate and inflation are at a historical low, they have no where to go but up. Even if your 700k went to 1.3 mil, your 0% 10 year CD would loose out in the long run over my 700k in the bank getting compounded interest or dividends. You don't understand the concept of nominal price and real price. On top of that, I would be living in a nice place than you for that duration while taking first class vacations where ever I want due to the savings.
Mortgages that are more than 3x-4x income are just not sustainable in the long run, because (hard to believe) there are more important things than owning a home NOM or in Brentwood. Minor details like food, utilities, transportation costs, children's education and emergency funds (medical, home repairs, car repairs).
If you look carefully at anon April 2, 2010 8:44 PM list of home rents, you get a range between $4500 - $6300/mo. THAT IS WHAT PEOPLE CAN AFFORD TO PAY, no HAMP nonsense. That means that if the home renters are prudent, their income is about 3x the rent: $13500/mo - $18900/mo or between $162K - $227K/year. Let's say, $200K year. Affluent, but typical of a working Westside couple.
Now if these people were to buy a home, what type of mortgage would a responsible bank give them? No more than 3x to 4x their income, so between $600K and $800K; assuming a 20% down, that's a home price between $750K and $1M.
Talk about how "it's different in the Westside" or other similar nonsense should be backed up by hard numbers. How does the typical family renting these homes go about buying a $2-$3M home when they'll be limited to an $800K or less mortgage? I'm sure a few will have the $1M+ in cash to drop, but most won't.
"A place to live can be owned or rented. Why would any rational person spend more to buy than to rent?"
In 1978 my dad bought a place. He paid $1,050 a month for it, even though he could have rented it for $700.
By 1985, that place was renting out for about $1,200 a month, yet my dad still paid $1,050 a month.
By 2000, that place was renting out for about $2,200 a month, yet my dad was still paying $1,050 a month.
Today, that place rents out for close to $3,000, yet my dad now pays $0 a month.
Of course he still pays taxes and maintenance so its not really $0, but you see the point dont you?
April 7, 2010 12:52 PM says "If you look carefully at anon April 2, 2010 8:44 PM list of home rents, you get a range between $4500 - $6300/mo. THAT IS WHAT PEOPLE CAN AFFORD TO PAY, no HAMP nonsense. That means that if the home renters are prudent, their income is about 3x the rent: $13500/mo - $18900/mo or between $162K - $227K/year. Let's say, $200K year. Affluent, but typical of a working Westside couple."
Dear Anon April 7, 2010 12:52 PM: You are making an assumption you should not make concerning the income of the renters. Many people who make a lot of money still do not like to overpay for something. You are presuming that someone who pays $6,000 in rent is paying all that they can afford. Based on that narrow-minded statement, I am guessing you are a "home owner" who bought the most expensive home he/she could afford, and not much of a saver otherwise. Or did you just mess up this time? If so, I apologize for calling you narrow-minded - and you can backtrack gracefully in your next post. Without giving you the details, I know renters who rent at $6,000 because it is a bargain, and could pay $20,000 per month if they were so inclined/foolish.
Of course he still pays taxes and maintenance so its not really $0, but you see the point dont you?
Nicely done anon. This singular obsession with rental parity, especially in year 1 ownership for prime westside properties is ludicrous.
Rental parity in year 1 is what you see in povertystricken areas where people truly dont have the ability to ever afford to buy. Whoever infected this blog with the groupthink idea that they will see rental parity in year 1 did everyone here a tremendous disservice.
April 7, 2010 2:17 PM says: "This singular obsession with rental parity, especially in year 1 ownership for prime westside properties is ludicrous."
What about 2x on rent? When does that make sense? The ONLY reason arguments about paying more now to pay less later (relatively speaking) is IF prices are rising, and not only for a little while, rising consistently and over a long period of time. I am sure everyone now agrees that prices are not going up, right? Right now, you have to look out 12 or more years in order for buying to make sense ONE DAY. If it were 3 years, I would agree with you. It was 1 year in 2005, when prices were rising. But that is history.
So, I am calling you out -- exactly how much "premium" should be paid to "buy" vs. "rent"? Do you really believe "it is a great time to buy" at 200% of the cost of renting? Give us "group-think victims the answer.
Use the NY Times "buy vs. rent" calculator, and show us ALL your assumptions that you would use to get to a buy decision. Then all can debate the rationality of your assumptions and results.
http://www.nytimes.com/interactive/business/buy-rent-calculator.html
Go ahead -- Show us the numbers, and let's all see which of us is the victim of group-think!!
That calculator really does make things clear, especially when you throw in negative appreciation, which is what to expect in the mid and upper tier So Cal markets.
Also, historically, renting is more expensive than buying because a premium is paid for mobility. Everything in the mid and upper tier markets is upside down now by a quite a margin.
I think many here have just had it beat into their brains by the media and the "sheep-culture" that owning a home is mandatory, that real estate always goes up, etc. Time to question those beliefs.
"Go ahead -- Show us the numbers, and let's all see which of us is the victim of group-think!!"
So whats your answer then? Rent forever? Look at what anon @1:43 posted - was his dad foolish to pay a 50% premium to buy when he could have rented? How would that one have worked out for him?
Had he rented for $700 he could live like a king and take all the fancy vacations he wanted. Instead he understood the concept of delayed gratification and sucked it up for a few years til buying made much much more sense than renting.
And to think, instead of now paying $0, imagine he stuck with the rent forever mantra and was now paying $3000 a month. It must be great fun being 70 years old and paying 36K a year every year for the rest of your natural born life.
You know how when you retire, some companies give you like a watch or something? If you make it to age 70 with the prospect of paying 36K a year or more for the rest of your life, perhaps your Landlord will reward you with a cyanide capsule so you can end your sad existence - at least no more payments then right???
April 7, 2010 3:27 PM --
are you DEFLECTING THE QUESTION and refusing to use facts and figures? If so, you are wasting everyone's time here, including your own, because you think you "know" the answer instead of trying to learn and improve your understanding and the understanding of others.
You are saying "hey, look, it worked for the one guy who bought a house a while ago!" as if that is persuasive. Hindsight is 20/20, and you are making an illogical argument. Things worked out well for Dad because housing prices outstripped rental pricing. But you have to note that "Dad" would have been able to sock away the $$ difference btwn rent and mortgage in the early years. What if he bought Microsoft stock in 1986 with that extra money? Your argument is the same, except you point to the rapidly rising value of his house and how smart he was to overpay in year one because he KNEW it would go up in price faster than rent. Right-eee-yo!
So, using your tinfoil pretend time hat now, what would have happened if it were 2006 when
"Dad" bought his house with his genius knowledge that housing always goes up faster than rent, and if house prices had not skyrocketed, and in fact they dropped. Over time, "DAD" might end up losing his deposit and/or very poor indeed, with zero savings to pay even enough income to pay his property taxes or for the heat.
So, to be blunt, please get real. You need to RUN THE NUMBERS or STFU, as your example is completely valueless without showing the assumptions. You are assuming prices will rise. FINE, show us how much percent they will rise over how many years and with what interest rate on the loan, what rate gain will happen with investments and what rate of inflation, etc. Once you do, you can then post here and see if anyone thinks your estimates are rational. But you need to run the numbers - not wave your (idiotic) hands. Otherwise, bug off.
I agree with the pro-buying crowd. Sure, it sucks to pay such a premium to live in the Westside of Los Angeles, but I have the same story as the Anon with
the dad who 'overpaid' instead of renting. I bought my home for $380K, had a $2000 mortgage and could of rented the same type in Santa Monica home for $400-500 less. It wasn't great to feel that way when prices CONTINUED to go down after we bought. Ouch!
But you know the story right? We hung on and raised our family, great neighborhood by the beach, loved the lifestyle and quality of life.
We sold it last year for close to 4x what we paid for it....
Sure, it makes sense to see home prices flat or declining and thinking 'why should I throw money away when things are sinking' and rent instead.
But you gotta bite the bullet sometime....or else why would you be reading this blog?????
by the way, Anon April 7, 2010 3:27 PM, not everyone is like you spending every dollar they get (the vacations bs you lay out). Most smart people put the difference (the down payment they do not have to hand over to the seller) into investments, and put the monthly dollars they save by having lower monthly rental vs. buy costs into the bank too, on top of the property taxes they do not pay.
And, if you will actually spend 3 minutes at the NY Times calculator, you will see that there are some cases where in fact YES, the correct answer IS to rent forever rather than lose money or waste it.
Try numbers some time. They do not lie (or wave their hands in frustration to answers they do not like).
Green Groovy Mom --
If housing prices go up 4x over the next 20-30 years, you are right. But what makes you think they will or must?
To do that again, housing prices need to go up 6-7% per year every year! Good luck to the rest of us.
It is great that you gambled and won. Ever wonder if that was a one-time event that ended in 2007? Or are you in touch with groovy crystal powers that tell you the answers?
Funny thing is I ran my dad's assumptions into that NYT calculator. They said he would be better off renting for 30 years - LOL.
The problem with that and all calculators is that no matter what assumptons you make about it, you cannot predict the next 30 years.
Right when he bought, he said it felt like a death sentence. Back then there was high inflation/stagflation, a double dip recession, and massive layoffs. He figured he was gonna get hammered on home prices - especially as interest rates rose to 14,15% by 1982. Funny how none of those things mattered in the end.
Full disclosure here, I rent. Ive been waiting since 2005. Not buying in 2005 was a no brainer as prices were going down - fast. Today however its not so clear.
The people I do feel sorry for are those who have been waiting since 2002 or before. I know some who were convinced 2002 was a bubble and if they waited long enough, prices would drop way below that. Imagine their horror as prices rose in 2003, 2004, 2005. If by some miracle prices get back down to 2002 again, they are in the exact same position they were in when this started, except they are now 10 years behind the curve on making payments. That sux.
but gotta consider the extra savings those ppl who've been waiting since 2002. If they are the hard working, savings type, they would have a 50% or so down payment or move up to a more expensive area.
LOL, I couldn't afford in 2002. By 2003, I could have afforded 2002, but then prices went up insane again. So now prices WILL go down to 2002(and below).
But I'm not in the same boat.
Difference is I make 3x what I made in 2002 and I'm looking at a 15 year mortgage on 2002 prices, not a 30 year one.
First Poster. These are my sentiments, and I know many others think the same way. Just don't buy! It's as simple as that. It's no longer a question of whether one can afford it. There's a principle involved, and it's along the lines of "I'm not prepared to be ripped off!" Join the Buyers Strike.
Why are people who have no intentions of buying (now or ever for that matter) posting on this blog? If you want to rent forever, that's perfectly fine, but why are on this site slamming anyone who wants to buy (or who bought)?
Anon - April 8, 2010 8:19 AM
"Why are people who have no intentions of buying (now or ever for that matter) posting on this blog? If you want to rent forever, that's perfectly fine, but why are on this site slamming anyone who wants to buy (or who bought)?"
People want to live in a nice place at a proper price. The folks posting here MAY buy a house. Just not at the price YOU want them to.
The only people being slammed are the ones who are unwilling to use logic and analysis to reach conclusions (like buying a house in prime WLA today at 2x its rental value is smart to do) and are unwilling to examine their assumptions and ideas with numbers and thought. I think we call those people "touchie-feely" and "quaint" when we want to be polite, and "foolish," "shell-shocked" and "of limited capacity" when we do not.
So, query, why are you here, Anon - April 8, 2010 8:19 AM? Have you noticed that some of the "slammed" have been unable or are unwilling to address the issues?
The example of the dad who bought in '78 has to be contrasted with those of us who do not have geographic stability. We have both owned and rented using rent/buy calculations similar to the NYT calculator. The one time we spent more because we thought we were stable (3 moves ago) we lost money. The other times we gained and would have lost in the markets where we rented because rent/buy was out of whack.
I have seen rental parity in some of the less desirable LA neighborhoods, the westside is just lagging.
A very wise financial planner I knw once told me that buying a home is a great way to force savings for those who are not disciplined and will spend their savings on vacations instead of stashing the money away. For those who are disciplined, renting and saving the difference can be an excellent option. There are also times when we buy as a lifestyle choice. Nothing wrong with that as long as we are not deluding ourselves that it is a purely economic decision.
Another good calculation for the disciplined among us is the ARM vs fixed rate. If you get the ARM with a lower rate and make a payment as if you had a fixed rate 30 year, then even with a maximum increase in interest, when I have done the calculations the reducion of principal is big enough the you come out ahead. We did this on one home we owned and made out very well indeed.
Anon April 7, 2010 1:53 PM
says
Dear Anon April 7, 2010 12:52 PM: "You are making an assumption you should not make concerning the income of the renters. Many people who make a lot of money still do not like to overpay for something. You are presuming that someone who pays $6,000 in rent is paying all that they can afford."
The ONLY assumption I made is that a PRUDENT person would not spend more than 3x-4x their income on housing cost (rent or mortgage).
I'm sure there are people who find these rents a bargain, as well as people who MUST LIVE NOM AT ALL COSTS! who are spending 1/2 their income or more just for the zip code (and the schools).
The house rental prices just give you a rough idea of what the median income is. Landlords have to make a profit as well as pay expenses so they'll price their units at what the market will bear, while still producing a profit.
I WAS a home owner - sold my place a while ago at a profit and I'm now renting. My rent is barely 1/4 of my take home, and between my wife and I, we have the income, savings & investments (as a 20 year stock holder, thank you APPL!) to buy a house now. Eventually we will; now it's just the folks with poor judgment/impulse control - and money - who are buying now.
"I have seen rental parity in some of the less desirable LA neighborhoods, the westside is just lagging."
Right right. I guess it was just "lagging" in 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010.
How many more years before you are willing to consider the POSSIBILITY that the Westside, and other similar desirable areas do not ever achieve year 1 rental parity?
"I have seen rental parity in some of the less desirable LA neighborhoods, the westside is just lagging."
Right right. I guess it was just "lagging" in 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010.
How many more years before you are willing to consider the POSSIBILITY that the Westside, and other similar desirable areas do not ever achieve year 1 rental parity?
"How many more years before you are willing to consider the POSSIBILITY that the Westside, and other similar desirable areas do not ever achieve year 1 rental parity"
I think everyone needs their own exposure to the realities of the market to figure that out. For me it was mid 1990s & a desirable place on the east coast.
As that bubble burst, I assumed we would get to rental parity just like the low end did. This was in the early days of the internet so I had spreadsheets, software programs - LOL.
By 1995(?), prices got to about 140% of rental parity, then stagnated. I could have bought but I was stubborn, assuming rental parity would come here too.
By 1998 it was clear, 1995-96 was the bottom & rental parity was never reached. I never did buy, and (in hindsight) was very sorry I didnt.
I have no idea as to how close to rental parity the westside will get but I will tell you this -- some people get very beholden to a single "pet" metric, which is not a good idea. Ive seen instances where they all work & ive seen instances where only a few of them work. In NYC, it appears that none of them work :)
So my only advice would be, look at all of them, even the ones that tell you things you dont like to hear. That is what I am doing now, and will be doing in a few more months when I move out to that area and start seriously house shopping.
Good luck to all of you.
Re: April 8, 2010 9:22 AM
I actually don't want people to buy homes at a high(er) price because I am not a current homeowner. I sold my townhome in 2008 at a profit and am renting a comparable unit while house hunting.
Your use of CAPS indicates the very angst that I am referring to. I actually want the same thing you do, but don't jump down someone's throat when they speak with their wallet and buy for whatever reasons they have.
I am on this site to see the westside market statistics, color commentary on particular listings and general sentiment of the buyers on the sidelines. Not to throw CAPS around accusing people of anything or trying to convince them of something I believe in.
"So my only advice would be, look at all of them, even the ones that tell you things you dont like to hear."
Agreed. I was playing with redfin demographic info and I was stunned by what it told me about 90402:
http://www5.onboardnavigator.com/1.5/WebContent/OBWC_report.aspx?&AID=386-b385f004f6c7&CD_SID=CO001&RTID=1&RID=27989&Frame=0&Height=600&Width=650&AgentEmail=&AgentID=&SearchID=1&LSID=6&STEXT=90402&STYPE=3&STEXTOPT=&STYPEOPT=-1&STEXTOPT2=&STYPEOPT2=-1&ITID=-1&SITID=-1&PassBackValues=&NHood=&Market=&TaxID=&County5=&PropertyType=-1&TransactionType=-1
Despite the median household income being 135K, look at how heavily it skews toward people making over 500K! Ive simply never seen anything like it. No wonder so many there are getting outcompeted by the over 500K group and are forced to rent.
I am still looking to buy, but I have moved beyond 90402. That neighborhood looks long gone to a 200K household like mine.
L.A. Times article: experts predict rents to decrease 3.5% in the coming year. Oh, but rents always go up, right?
"now it's just the folks with poor judgment/impulse control - and money - who are buying now."
Statement could have been made about buyers in any upscale Westside neighborhood over the past 30 years. Here is a fun idea - drive around in the 90402 and honk and laugh at all the stupid people who are homeowners. Perhaps a shamed owner will offer to swap their house for your apartment to get in touch with reality.
Post a Comment