Home buyers negotiating branden chhuor

Reasons To Buy a Home Today

Reasons To Buy a Home Today

Branden Chhuor, October 22,2014 (All rights reserved, permission to reprint with appropriate citations)

Many people in my Southern California market have asked me, “Is it a good time to buy a house?” My general response, “It depends on your situation.”
In most situations, people are looking at properties for sale to live in, not rent out. If this matches your situation, then it is definitely still a good time to buy, even with the increasing house prices within the past couple of years. The four factors I look for in determining when it is a good time to buy your Southern Californian dream home or first home are the following:
Rent
Inflation
Interest Rates
Timing

RENT
A market with rising rent means that the real estate market is getting back on its feet and vacancy is low. When you have a situation such as today where rent is climbing faster than house prices year over year, then you are faced with the dilemma of cost to rent versus cost to own. As such, I would rather buy and lock in my monthly payment at a fixed amount than risk facing rent increases. Why pay for someone else’s mortgage? In addition, as a homeowner you would also reap the tax benefits and principal pay down on your mortgage.

INFLATION
Inflation is another factor I look at because it affects our purchasing power and the value of currency. I am surprised that the US Federal Reserve continues to downplay inflation and dismisses the notion of it. Have they not seen the prices of gasoline, milk, beef, and other consumer goods have all gone up over 30% the last 4 years while wages remain stagnant? I am betting that wage will eventually catch up with inflation and when that day comes, house prices will further increase to match the cost of material and labor to build a house. As a homeowner, you will be hedged against inflation because you will be paying a fixed monthly payment while your property steadily increases in value over time. Again, you will be paying down the principle, increasing your equity position instead of paying someone else rent.

INTEREST RATES
Interest rate is the cost of borrowing money and we are currently at a 16 month low on the 30 year fixed rate ranging 3.8%-4.1%. From a finance perspective, it’s not costing much to borrow money and people should take advantage of. People don’t realize 10-15 years ago, the 30 year rate was nearly double at 6%-8%. Buying real estate for most people means leveraging their position by putting a down payment and borrowing between 5%-95% of the purchase price. If you are borrowing, doesn’t it make sense to borrow when interest rates are at and near the all-time low? Let’s say you (a borrower) with a solid credit score and you are looking for a conventional 30 year fixed rate with 20% down payment. Let’s assume that for every 0.50% increase in interest rates, it will result in a 5% drop in house prices. Here are some scenarios to show what I mean:
Scenario 1: Home price of $500,000 at 4.25% = $1,968 monthly mortgage
Scenario 2: Home price of $475,000 at 4.75% = $1,982 monthly mortgage
Scenario 3: Home price of $450,000 at 5.25% = $1,988 monthly mortgage
As you can see, yes, prices do drop as interest rates rises, but there’s a good chance your monthly payment has gone up.

TIMING
Like that old saying goes, “Timing is everything”. The same goes for real restate. If you buy it a little too late such as 2007, then you were upside down on your property for the next 5-7 years. I believe today is still a great time to buy due to the fact that we just came out of the recession and real estate prices have adjusted. Southern California real estate historically has a cycle of 8-10 years of appreciation and then 3-5 years of depressed prices. If history holds true, then we are in the beginning of an appreciation cycle. Considering the other factors mentioned above, it’s safe to say the timing is still there for people to buy their first home.

Hopefully this reading gives you some idea of what I usually look for when people ask me the

Home buyers negotiating branden chhuor

Home buyers negotiating branden chhuor

question, “Is it a good time to buy a house?” This point of view is for those looking to buy a dream home or first home for the long haul of 5 years or more. If you are looking to buy for investment purposes, then it will depend on the area you are targeting. Stay tuned for the next article on real estate investing. Please feel free to reach out to me if you have any questions or comments.

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Los Angeles and Orange counties are the least-affordable housing market in the country

Los Angeles and Orange counties are the least-affordable housing market in the country. And it’s likely to only get worse.

That’s according to new figures due out Thursday from real estate website Zillow, which found that renters here need to pay more of their income to afford a place to live than anywhere else in the country.

Adding to the affordability woes, Zillow is predicting that home prices here will climb 5.7% in the next year, outpacing likely growth in most people’s paychecks.

For people who aren’t on the high end of income distribution — teachers, police officers — it becomes a real issue.
– Svenja Gudell, Zillow’s senior director of economic research
The real estate website crunched for-sale and rent prices and incomes across 35 housing markets in the U.S. It found that a family earning the median household income of $59,424 in metro Los Angeles — defined as L.A. and Orange counties — would need to spend 47.9% of its income to afford a median-priced rental apartment, and 42.6% to afford a median-priced house. Both were the highest share in the U.S., though L.A. tied with San Francisco in for-sale housing.

Prices here have grown much faster than incomes in the last few years, said Svenja Gudell, Zillow’s senior director of economic research. That’s pushing L.A. housing out of reach for many.

“For people who aren’t on the high end of income distribution — teachers, police officers — it becomes a real issue,” she said.

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Zillow’s figures echo a recent study by UCLA’s Ziman Center for Real Estate, which also pegged Los Angeles County as the least-affordable market in the country, and said that the rent crunch here has spread up the income ladder, to affect more middle-class households.

It’s a twofold problem, economists say.

Housing prices here are high, though not as high as in the Bay Area, and comparable to New York, Washington and Boston. Those places score better on affordability measures, though, because people there tend to earn more than the average Southland resident. Median household income in the San Francisco area in the second quarter was $76,239, according to Zillow; in the L.A.-O.C. area it was $59,424.

L.A.-O.C. housing market is least affordable in U.S.
Prices have grown much faster than incomes in the last few years, a Zillow research director said. That’s pushing L.A. housing out of reach for many. (Cheryl A. Guerrero, Los Angeles Times)
“Los Angeles has a lower median household income than comparable cities such as New York or San Francisco but only a small difference in median rents,” the UCLA report said.

Even for professionals with good incomes, buying a house in Southern California is a heavy lift, as Natalie Lohrenz sees every day.

As the director of counseling at the Consumer Credit Counseling Service of Orange County, she works regularly with first-time buyers trying to purchase a home in a place where the median house cost $600,000 in July, according to CoreLogic DataQuick. Last week, Lohrenz said, she met a registered nurse with a six-figure income who was struggling to buy a two-bedroom townhouse in Irvine.

cComments
@tear_down_my_reason Notice that most people live outside of California, I have relatives in Chicago and Michigan (not Detroit) and they like it there. Now that I have my piece of Golden State paradise near the coast (I have ocean views sitting on the throne). Remember Moonbeam V1.0 and small…
MAX PLANK
AT 1:16 PM AUGUST 22, 2014
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“In the majority of the country, she’d have no problem at all,” Lohrenz said.

One reason California is so unaffordable, said Gudell, may ironically be that it got hit harder in the housing bust than high-cost East Coast markets. Prices crashed. Investors scooped up homes cheap. Then as the market recovered, the price of what was left surged.

“They almost overshot,” Gudell said. “These California markets have these extremely high home values now, but incomes haven’t kept up.”

Related story: High housing costs are a drag on California’s economy, report says
Related story: High housing costs are a drag on California’s economy, report says
Tim Logan
If there’s good news, it’s that those price gains are slowing down. Zillow projects — based on supply, income growth and other factors — that prices here will climb 5.7% in the next year, more than twice the national average. But that’s barely half the pace they grew over the last year, and down sharply from the 8.7% annual jump the firm projected a month ago. Slow income growth is clearly putting a damper on demand, Gudell said.

And the places where rents are climbing fastest tend to be places with strong job growth. Zillow said rents are up nearly 20% in the last year in Santa Monica and Venice, where tech jobs have surged. Rents have fallen in more remote areas such as Lancaster and Palmdale.

That trend probably will continue, Gudell said, as the housing rebound fades and growth becomes driven more by jobs and income.
“It wasn’t as much of a jobs story six months ago,” she said. “Now we have a healthy job market and that’s really what’s driving home values.”

In the long run, that’s a healthy thing, said Keith Gumbinger, vice president of mortgage-tracking firm HSH.com. Price growth based on market fundamentals is a lot more sustainable than growth generated by market swings. Still, he said, it’ll take awhile to work out the damage of the last few years.

“We’re falling back to typical dynamics, and that should be healthier overall,” he said. “But income growth, wage growth, has been pretty weak. They’ve got a ways to catch up.”

tim.logan@latimes.com