Tuesday, February 22, 2011

The Pride of Ownership

"Think of owning your own home" The American Dream, and favorite real estate agent mantra, has turned into a nightmare. Anyone who bought during the last decade, is watching a slow-motion trainwreck, as home prices drop back to 2006, 2005, 2004, 2003 and beyond. The last real estate boom on the Westside, began in 1997 and ran 10 years through 2007. We are now in year 4 of the subsequent bust and have another 5-6 years to go, before we see a drop of appreciation. Think 2017, before local real estate has a chance of rising again. 10 year cycles of boom and then bust. The last real estate boom peaked in 1987 and didn't begin appreciating again until 1997. With the latest real estate binge being the bubble of all bubbles, I'm afraid we have much pain still ahead.

But, let's say your tired of waiting and decide to jump into the market, while interest rates are low. (Another bogus real estate agent argument) With $3,200 a month to spend on housing after the tax break, what can you get?


709 Ozone Street
Santa Monica 90405
2+1, 668 sqft
Lot size 1999 sqft
Year Built 1945
SOLD 2/2/11 for $542,000

$108,400 down
$3924/month payments
(Principal, Insurance, Taxes, Maintenance)
-$727/ month tax break
$3196/month for housing
$144,000/year of income to qualify

OR

Rent a 2-3 bedroom home North of Wilshire
$3200/month
No risk of losing your $108,000 down
Investing your $108,000 elsewhere
Mobile, free to move

These and other calculations to see how overpriced buying a Westside home is, can be found at HomebuyingTips.com

Even the LA Times had a story recently, about people rethinking the age-old idea of owning a home here. Renting has quickly become the weapon of choice for would-be buyers in LA. Why not, when you can live in a bigger house, in a better area, for less money and no risk?
Lastly, the Case-Shiller Numbers for December 2010 are out now and for the 7th consecutive month, home prices are down year over year (YOY). Now that the goverment is trying to exit the housing industry, it's obvious we have double dipped.

27 comments:

Anonymous said...

"We are now in year 4 of the subsequent bust and have another 5-6 years to go, before we see a drop of appreciation."

You mean, other than in 2010 where (for the entire year) Santa monica 90402, 90403, & 90404 eked out small median price gains of +0.8%, +7.5%, and +1.0% respectively?

http://dqnews.com/Charts/Annual-Charts/LA-Times-Charts/ZIPLAT10.aspx

You mean other than last years "drop of appreciation" right?

Anonymous said...

Median doesn't mean squat. Look at the price paid per square foot or real comparables.

Anonymous said...

Also up.

Ed said...

February 23, 2011 6:37 AM:

Nitpicking on a trivial point doesn't ruin the argument. It's possible the government injects new life into the market with more tax credit, but the effectiveness of the Fed's other policies have run out. The Federal funds rate cannot go much lower, and QE1/QE2 has boosted the financial markets enough to push the treasure rates higher.

Given the current condition of the US, with many large cities and even states on the brink of bankruptcy, I don't think uncle Sam's in any place to provide another round of tax credit to home buyers. Especially after Obama's extension of Bush-era tax cuts in exchange for an extension of the recent unemployment benefits policies.

Case in point, the factors that took effect last year for temporary appreciation are no longer applicable. We're in a double dip, and prices will fall some.

I'm not in agreement with many readers here that we'll see levels to that of year 2000 and below. Maybe in the less affluent areas of santa monica, but in the prime areas, prices will hold after a small decline and maybe stay stagnant for a while.

Personally, if I were to move into a neighborhood like that, I wouldn't move in expecting to move out in less than 10 years. My coworker lives near 22nd and just south of san vicente, and personally, I'd want to live there till I grow old. I'm sure that life can bring some unexpected events, but I'm sure that if you were in a position where you don't know where you will live in the next 5~10 years, there's no reason to commit to a million dollar home to begin with.

Anonymous said...

The bottom line is that renting is much cheaper. I've got a 5 bedroom home (I admit an older home with small bedrooms except for the master) for $3,200 a month in prime, and I mean prime, SM. It's just a matter of time, which could be 10 more years, before prices come down to historic levels. Let's face it, the baby boomers aren't going to have anyone to sell their overinflated homes to. And please, let's not here all that drivel about children inheriting money, wealthy foreigners, etc. That would be tired and pathetic.

Anonymous said...

"Standard & Poor's/Case Shiller said on Tuesday prices for single-family homes fell for a sixth straight month in December and warned that house prices could fall another 25 percent." - Rueters

Anonymous said...

You mean, other than in 2010 where (for the entire year) Santa monica 90402, 90403, & 90404 eked out small median price gains of +0.8%, +7.5%, and +1.0% respectively?

People will also see what they want to see and not how things truly are. Are we really going to go over why median price gain means nothing at all? A high end $5 million home selling at $3.5 mil will bring up the median price if only $1 million homes were selling before. I am sure the owner of that $5 million home realized what a sham median price is. Interestingly there was an article recently on CNN that talked specifically about why the NAR like to use median price in their statistics because it's much rosier.

Anonymous said...

The future will be just like the past:

20% down, 15 or 30 year standard mortages, PITI not more than 30% - 40% of your income or GTFO.

Anonymous said...

Are we really going to go over why median price gain means nothing at all?

Yep -- all those 2008 & 2009 median price drops in SM were nothing more than lower priced homes selling. Thats it.

Truth is, most homes havent dropped in price the slightest bit...

sondis said...

"$3,200 a month in prime, and I mean prime, SM. It's just a matter of time, which could be 10 more years, before prices come down to historic levels."

Jeebus - am I the only one here who looks at the prospect of paying an ADDITIONAL $384,000 in RENT and think, WTF!!!!

Not that I disagree with you - it very well could take another 10+ years. Still, the prospect of paying another $384,000 or more in rent makes me want to puke!!!

Jeremy said...

Looking at Median pricing is an absolute FARCE that the media likes to use. Think about it - all that is telling you is the media house price that sold was HIGHER than last year. Which essentially means higher priced homes are starting to move more because pricing is coming down.

DO NOT be fooled by the median price or the media. Both are meant to deceive you. Here's a good one I will leave you with: What's going to happen when banks finally start to get rid of their higher-end homes? Median prices will "rise" and the "recovery" will begin in the media. Hilarious. High-end prices will finally drop but the "recovery" will begin. Very nice math trick. Look for it in 1-2 years.

If you take into account that banks started with low-end properties and then transitioned to mid-level properties then you'll quickly realize that pricing reductions are actually WORSE than the median shows already, as they were simply "helped" by the medium priced homes that sold over the past couple of years (vs the lower subprime originally). So, the next time you see the Case Shiller index dropping yet again via median pricing, sit back and realize that it's actually declining MORE that the median shows us...

Good luck to everyone.

Anonymous said...

I am surprised to read some of these comments arguing that things are going just fine. On a day like today, where there were at least 3 articles on the internet, in the LA Times, in the NY Times, about how soft the market is and how every expert is forecasting more price declines -- what are you talking about? Are you a real estate professional hanging onto your last thread of hope?

Anonymous said...

Fall ANOTHER 25%? Are they nuts??? Why buy a home then? Geez, you lose 6% right off the top so in reality, that comes out to a 31% loss.

Anonymous said...

Jeremy nailed it with the farce that is "median".

Price per sq ft is also another tricky one. In 2007, you could sell a fixer upper for a higher $psf than you could sell a remodeled home for in 2010.

And why do realtors always use so many exlamation points???!!!WTF

Anonymous said...

"What's going to happen when banks finally start to get rid of their higher-end homes? Median prices will "rise" and the "recovery" will begin in the media. Hilarious. High-end prices will finally drop but the "recovery" will begin. Very nice math trick. Look for it in 1-2 years."

Agree 100%. The idea that there is a recovery is a farce because there never was a price drop. All that happened was lower priced homes were selling 2007-2009.

Likewise, there was no increase in prices 1998-2007 - all that happened was higher priced homes were selling.

Since all the stats are useless, you never know if it is a good or bad time to buy, because you never know if prices are increasing or decreasing. Truth is, prices are the same on the westside as they were in 1953.

Anonymous said...

9:16....you may or may not be a RE trick....but I have to somewhat agree with your thoughts on pricing for SFR in Santa Monica.

Good houses in good locations sell....for about the same prices + or - 10%.

Take 1221 Pacific in the 90405. Sold for about $760/sq. foot. About what the sq. ft. cost was selling for 4 years ago.

Ed said...

sondis, paying 384K in rent vs paying 50~100K in property taxes, another 200~300K in interest, 10~20K in maintenance/repair and another 20~30K in HOA (if you go the condo/townhome route) OR at least 10K+ in housing insurance? Buy now if you can afford it and you're playing for keeps. Otherwise, wait and keep your options open.


"all that happened was higher priced homes were selling. "

when homes that sold for X amount in the 90's sell for 2~4x the amount in 2004~2006, saying that higher priced homes were selling hides a lot of useful detail. the same homes that sold for less were selling for more (even with inflation adjustment).

Anonymous said...

So the latest data released today shows us that last month fewer than 500 homes were sold in the $750,000+ price range in the entire nation.

The entire nation. That's nuts. 25% pull-back? More like 40% pull-back and we're in this for a decade, at least.

Sondis said...

"Ed said...
sondis, paying 384K in rent vs paying 50~100K in property taxes, another 200~300K in interest, 10~20K in maintenance/repair and another 20~30K in HOA (if you go the condo/townhome route) OR at least 10K+ in housing insurance? Buy now if you can afford it and you're playing for keeps. Otherwise, wait and keep your options open."


ED - the problem is, its not exactly an either or proposition.
Its

(A) pay 50~100K in property taxes, another 200~300K in interest, 10~20K in maintenance/repair and another 20~30K in HOA now

or

(B) pay 384K in rent AND THEN pay 50-100K in property taxes, another 100-200K in interest (presumably waiting gets us a deal here), 10~20K in maintenance/repair and another 20~30K in HOA later.

Since anon and I are going to buy (and then pay all those costs eventually) anyway, its the prospect of first paying another 384K in rent that makes me want to puke.

Anonymous said...

Hey guys,

When housing around Santa Monica fall then people have alternatives, which in turn puts pressure on Santa Monica prices.

Not rocket science...

Check out Culver City pricing and surrounding area. Anyone buying in SM now is really asking for it.

Anonymous said...

Yeah, better to piss away 384k than 600-700k! Give me a break. You'll probably lose 100k a year for the next few years on your monkeycage.

Anonymous said...

Anyone else gone to see 201 ocean avenue 907b?

Condo in the 90402 asking 5.9 million

Wonder if they'll get it

Anonymous said...

1:36 PM -- please provide a link to these data

Anonymous said...

Latesummer,

We had a lively debate between bulls and bears before getting stuck in a rut

I wish I could be nicer about this, but I have to say that both the "bulls" here and the "bears" here are doing evil things to the young professionals who read this blog.

The young professionals grew up dreaming about being able to buy North of Montana in order to raise a family.

Today, the bulls &or real estate agents are saying that North of Montana prices are going to go up over time and thus that the young professionals should stretch and scrape to afford to buy in North of Montana and let rising prices bail them out.

As you can tell, I think the bulls and real estate agents are hurting the young professionals by telling them this. The young professionals will lose their shirts.

How much does a young pediatrician make these days? $200k? $200k is absolutely nothing in terms of being able to afford the typical $3 million house North of Montana. The young professionals that are brainwashed by the bulls and realtors here will be a slave to debt for the rest of his life

Now let's talk about the bears. The bears are saying to that same young professional - "prices are going to go down North of Montana" what that does is it leads the young professional to stay in the Santa Monica area, hoping praying for the day that the bears have promised to come. Most of these young professionals put off having children until they can live North of Montana, they put their whole life on hold while they wait and wait for what the bears promised them.

This same young pediatrician that can't afford a hovel North of Montana on his $200k can afford a nice house in plenty of other places in America on that $200k

I don't mean to shock the people who post on this blog, but young pediatricians make the same $200k all over the USA that they make here in Santa Monica. I also don't mean to shock you but a $200k income is enough to buy a nice house in many of these places

The bears are leading the young professionals to hang on in a desperate intense desire for North of Montana. In many ways the bears are doing just as much evil as the bulls.

We need to get the debate going, between the bulls (who i disagree with) the bears (who i disagree with) and the reasonable people

Anonymous said...

Well said February 27, 2011 6:01 PM! Most posters are quite polarizing, but I would suspect that there are many readers (like myself) that are somewhere in the middle.

Like political talk shows, middle of the road comments (i.e. there may be some downside left, but we want to settle down with our young family sometime soon...) go unoticed in a forum like this.

Ed said...

February 27, 2011 6:01 PM -
Dreaming of living north of Montana? Desperate intense desire to live there? Doesn't sound very reasonable either.

I'm sure a pediatrician who earned his/her credentials also has the brains not to be dragged by the bulls or bears. There's bigger fish to fry than wither away on a fading dream.

Anonymous said...

Will someone PLEASE show me a nice 2 - 3 br home north of Wilshire for $3200 a month? Because I have been looking and can't find one and don't know what to do. Everything nice seems to be at least $3500 and is really $4000 a month.